5 Crucial EOS Tools That Drive Business Systematization and Success

The Entrepreneurial Operating System® (EOS®) is used by over 100,000 organizations to help them align around common goals and improve the business. These are some of the most important tools that make it work.

Key takeaways:

  • EOS is a model built for busy entrepreneurs and centers around six key components: 
    1. Vision
    2. People
    3. Data
    4. Issues
    5. Process
    6. Traction
  • Five key EOS tools include:
    1. Scorecard
    2. Rocks
    3. Vision/traction organization
    4. Accountability chart
    5. Meeting pulse

Implementing a quality business operating system can vastly improve processes, teams, and organizations. And the Entrepreneurial Operating System® (EOS®) is a model made for busy entrepreneurs looking to streamline and scale their businesses. 

The system focuses on accountability for team members, aligning everyone around a shared vision, being very clear about roles and responsibilities, and tracking progress with measurable goals.

When you decide to use EOS, some key tools drive these results. Let’s dive deeper into what EOS is and the crucial components that make it effective.

What is EOS?

EOS is a system of concepts and tools that help businesses clarify, simplify, and achieve their vision. It was built for busy entrepreneurs and provides straightforward tools without complex theories or methodologies. And instead of addressing business issues temporarily, EOS focuses on finding root causes and changing the organization holistically. 

The EOS model is used by over 100,000 organizations worldwide and is comprised of six key components:

  1. Vision: Every person who is part of the organization should be aligned on where the business is headed—and the steps needed on that journey.
  2. People: Business owners must hire, develop, and allocate the right people for specific roles.
  3. Data: Many parts of a business are objective, and companies must separate the facts from feelings, opinions, and egos.
  4. Issues: Every business will have problems, but are you solving them? You need to systematically address issues and their root causes to ensure they don’t return.
  5. Process: A business’s core processes must be identified, simplified, and documented.
  6. Traction: This is where a business gains momentum, and much of this traction depends on holding people accountable and ensuring actions are correctly executed.

When business owners feel stuck and unable to move forward, EOS helps them find actionable solutions to improve how the organization runs. The model is laser-focused on ensuring that everyone is on the same page and working toward the same goals.

5 crucial EOS tools 

EOS should be implemented comprehensively, but there are some fundamental tools that help it achieve significant results. Here’s a look at five crucial ones:

  1. Scorecard: It’s not enough to track progress regularly; every person who is accountable for something must have measurable metrics tied to performance. It ensures everyone knows what is expected of them and helps precisely keep track of how things are going.
  2. Rocks: Rocks are your business’s top three to seven priorities for the next 90 days, as determined by leadership. These need to be shared with everyone, followed by each person developing one to seven individual rocks that reflect organizational or higher-leadership goals.
  3. The Vision/Traction Organizer (VTO): EOS’s VTO is a two-page guide that helps align the team around these eight questions:
    1. What are your core values?
    2. What is your core focus?
    3. What is your 10-year target?
    4. What is your marketing strategy?
    5. What is your three-year picture?
    6. What is your one-year plan?
    7. What are your rocks?
    8. What are your issues?
  4. Accountability chart: This helpful chart outlines the organizational structure. Every person can see their distinct roles and responsibilities, so there is no confusion and clear accountabilities.
  5. Meeting pulse: Effective meetings keep people productive and on the same page. EOS emphasizes the value of weekly Level 10 Meetings (which should be held on the same day and at the same time with the same agenda) and quarterly meetings. This format applies to every level or department within the organizational structure.

These are some of the essential components of the EOS model. Without accountability, regular meetings, priorities, a scoring mechanism, and a shared vision, it’s challenging to keep a team aligned and the business growing.

Getting help with EOS

EOS tools are proven to help business owners align teams around a common cause and systematize companies, and they work for businesses of any size. But sometimes, owners find it challenging to implement EOS while also participating in the process. This is where an outside perspective and guide can help.

The Provident CPA & Business Advisors team helps our clients implement EOS and all its vital tools. The first step in our EOS process is a complimentary 90-minute meeting with your business’s leadership so that everyone can learn more about the model. 

Contact Provident CPA & Business Advisors to learn more.

A Guide to IRS Form 8829: Expenses for Business Use of Your Home

IRS Form 8829 is where you can claim the regular home office deduction and calculate other expenses related to using a home for business.

Key takeaways:

  • Form 8829, Expenses for Business Use of Your Home, allows you to calculate the percentage of your home used for business and other allowable related expenses.
  • Taking the simplified home office deduction is much easier, but you won’t list actual expenses or take a home depreciation deduction.

Some taxpayers may report expenses related to using a home for their business on IRS Form 8829, leading to the home office deduction. These expenses may include maintenance costs paid in association with running a business from home, among others.

While the IRS set up another method for calculating these deductions—the simplified home office deduction—it’s still helpful to understand when you would need to use the form and how it allows you to calculate everything. 

This guide walks through the Form 8829 basics, including the expenses and the eligibility requirements. 

What is IRS Form 8829?

IRS Form 8829, Expenses for Business Use of Your Home, may be used to calculate allowable expenses related to using your home for business purposes. This form is what you use if you’re taking on the regular method of claiming the home office deduction.

Form 8829 is typically used by small business owners and self-employed taxpayers who work from home and run business operations there most or all of the time. You are allowed to deduct business expenses related to a part of your home only if it is exclusively used on a regular basis:

  • As your principal place of business
  • As a place of business used by customers, clients, or patients as part of the normal course of the business
  • In connection with the business, if it is a separate, unattached structure from the home

Factors that qualify a home as a principal place of business include whether you use it exclusively and regularly for administrative or management activities and don’t have any other fixed location where you conduct these business activities. These guidelines also mean that if you use a workspace that also doubles as a bedroom, kitchen, living space, or another purpose, it does not qualify as exclusively used for the business.

According to the IRS Form 8829 instructions, you cannot use the form if you:

  • Are a partner, or are claiming the expenses on Schedule F of Form 1040
  • The business expenses are properly allocable to inventory costs (use Schedule C, Part III instead)
  • You have elected to use the simplified method for the home for this tax year

Keep records like photos of the space and documentation of measurements, and make sure everything is dated for later reference. Sometimes a home’s real estate records will have accurate square footage that you can reference and save. These records can help in subsequent tax filings or if the IRS has any questions about Form 8829 calculations.

How to calculate using Form 8829

The first step when you’re ready to use Form 8829 is calculating the portion of the home used for business operations. In Part I, you provide the total area of the house and the area of the dedicated workspace or room and divide the work area by the home area. The form asks that you enter the result as a percentage.

So, for example, if the business space is 300 square feet and your home’s total area is 1,500 square feet, the office takes up 20% of the residence.

Part II figures out the allowable deduction. You’ll enter the Schedule C, line 29 amount plus “any gain derived from the business use of your home” and minus “any loss from the trade or business not derived from the business use of your home.” Then, report direct and indirect expenses, including casualty losses, deductible mortgage interest, and real estate taxes. Multiply the total by your home use percentage on line 7.

Next, you add up these direct and indirect expenses:

  • Excess mortgage interest
  • Excess real estate taxes
  • Insurance
  • Rent
  • Repairs and maintenance
  • Utilities
  • Others

Multiply the sum by line 7 again. You then calculate home depreciation in Part III and report carryover of unallowed expenses in Part IV. These last two sections are a bit more complicated. So, if you’re not using software, it’s a good idea to talk to a tax expert about the calculations.

What about the simplified home office deduction?

Because Form 8829 can get a bit complicated with expense and home-area calculations, many self-employed taxpayers decide to go with the simplified home office deduction. Just as with the regular deduction, the simplified version can only be claimed by workers who don’t receive a W-2 as a regular employee. You don’t have to own the home to qualify for the deduction (simple or regular).

The simplified option makes calculations and recordkeeping requirements far easier. It takes a standard deduction of $5 per square foot of your home with a maximum of 300 square feet, and eligible home-related itemized deductions are claimed on Schedule A. There isn’t a home depreciation deduction with this method.

So, while the simplified method is much easier for business owners, use the regular method if you’d rather enter actual expenses and deduct depreciation on the portion of the home used for business.

Working with a qualified CPA 

If you’re self-employed or run your small business from home, there are numerous tax considerations to manage each year. Taking the home deduction and submitting the correct forms is just a portion of your obligations throughout the year, including paying estimated taxes and keeping proper records. 

If you have questions, be sure to consult a qualified CPA with experience helping business owners develop effective tax strategies.

Provident CPA and Business Advisors helps our clients pay the least amount of tax legally possible while assisting business owners as they implement comprehensive growth strategies. Contact our experienced team to learn more about our services.

What Are Your Business’s Core Processes?

A business is driven by a set of workflows and actions that help define who you are, what you do, and how you do it. 

Key takeaways:

  • A core process is a detailed business function that keeps the business moving and aligns teams through shared steps and well-defined accountabilities.
  • Identify and strengthen your core processes with these steps:
    • Outline all business components
    • Determine which processes impact the business the most
    • Think about what makes you unique
    • Identify overlaps and assumptions
    • Consider which processes are and aren’t working
    • Start simplifying
    • Hold people accountable
    • Take the customer’s perspective

One of the first things to do as a business owner is identify your “why”—the reason your business exists and why you think it’s important—and outline its core values. But once operations are running and you have a few employees, it’s also crucial to systematize and align how many tasks are carried out, which is the role played by core processes.

Outlining these processes and keeping them front and center can help you simplify workflows and outcomes. Let’s look at how to define, implement, and maintain core processes.

What is a core process?

Core processes may vary slightly from business to business. But typically involve the following business functions:

  • Marketing
  • Sales
  • HR
  • Customer retention
  • Operations
  • Accounting

Think of each of these areas as a critical driver for the business. For example, growth drivers have to do with attracting new customers via sales and marketing. Efficiency drivers are related to operational processes. And, of course, financial drivers are the processes you have in place to maintain cash flow and capital.

These areas are “core” to the success of the business—without them, you couldn’t find new customers or offer employees benefits or ensure the bills get paid each month. However, depending on the size of your business and industry, the exact core processes could look a little different. 

Core processes are vital because everyone throughout the business needs to understand, use, and align with some standard ways of doing things. There will be far less confusion across departments. Team members should be able to define them, follow them, and know their purpose without much thought. Core processes also help business leaders assess which areas are falling short or need more resources, which also improves efficiency.

And outlining your core processes means you can also start improving and simplifying them, creating a more self-sustaining enterprise that is on track to grow.

How to identify and strengthen core processes

Here are some steps to get started:

Outline all business components

It’s often best to start by recording each key aspect of the business. This means thinking through every department and process that currently exists. Then, link whoever is involved with each process. For example, marketing is a key function; there is a process for recording and reporting on qualified leads; and the marketing manager is the essential owner, and the marketing team is the crucial user of this process. 

Determine which processes impact the business the most

Critical drivers impact the business when something goes really wrong or really right, and core processes are intimately tied to them. So, which workflows have the most direct influence on the bottom line, for instance, or customer retention rate? These questions will lead you to the core processes.

Think about what makes you unique

While every business has some of the same components to make money, and companies within industries may share products or services, there’s a lot more to what you’ve created. What are your key differentiators in the market? Whatever makes the company unique—such as customer service, for example—has led to particular actions you take that other businesses don’t. These are probably core business processes and may also align with your core values and business vision.

Identify overlaps and assumptions

Once you start digging into each gear within the overall business machine, you may realize that you had false assumptions about a task, where it was being handled, or who was handling it. There could be some overlap—for instance, two “owners” tackling financial and operational tasks. The core process exercise reveals these mixed responsibilities, allowing the team to clarify them. Figuring out where assumptions are incorrect points the way to better solutions, including improved processes or entirely new ones.

Consider which processes are and aren’t working

Each core process has some desired outcome—whether it’s to get a certain number of leads with a marketing campaign or pay invoices faster. Where are these outcomes not being met? Where are goals being exceeded? What can you change about a process to improve things? This step leads to the next one …

Start simplifying

Visibility is the first step to change. Now that you’ve looked at where things are being held up, you can start to smooth out the kinks. A great way to proceed is by assessing whether the best tools are being used to complete a process. Is there a more efficient way to do it? Is a 12-step process better as a three-step one? Are the steps—such as contacting a specific individual—correct? Have you incorporated automation when possible? 

In general, the simpler the process, to the extent it’s practical, the more effective, accepted, and useful it will be.

Hold people accountable

Remember that people are involved in each process, and they should be held accountable when specified steps aren’t followed or effective. Identify the person behind each action you’re looking at to uncover areas that require additional training, opportunities for support, or better processes. Getting team members aligned on core processes and desired outcomes increases engagement and efficiency.

Take the customer’s perspective

Another vital step is considering what your customers think. Even if a process is the most efficient it can be, that alone doesn’t mean it’s working for your customers. Make sure that simplifying processes takes their perspective and the impact on them into account, prioritizing their wants and needs.

How EOS® can help your business

Core processes keep everything running smoothly and ensure a business gains Traction. Identifying these crucial elements is a part of the Entrepreneurial Operating System® (EOS), which helps business owners clarify, simplify, and achieve their vision. 

Provident CPA and Business Advisors helps our clients implement this system to strengthen their companies and hit their goals. To learn more about our business advisory services, contact us today.

Business Owner vs Self-Employed: What’s the Difference?

Self-employed individuals own their businesses, but not all business owners are self-employed. Here are the essential differences.

Key takeaways:

  • Business ownership can look a few different ways. For instance, business owners can hire other people to work for them or be sole proprietors.
  • Self-employed individuals work for themselves and include independent contractors, partners, sole proprietors, and members of an LLC.
  • The key differences have to do with the type of business, the way it’s taxed, whether there are other employees, how owners get paid, and other factors.

The surge of the gig economy has made freelancing or starting up a business more common and desirable. Pew Research reports that about 16 million US workers identify as self-employed today. This means, according to the IRS’s definition of self-employed individuals, that any of the following conditions apply to them:

  • They carry on a trade or business as a sole proprietor or independent contractor
  • They are a member of a partnership that carries on a trade or business
  • They are otherwise in business for themselves, including a part-time business

Nevertheless, many people confuse self-employment with business ownership. They may assume that any kind of business owner is self-employed because they started or still run the business. But are they always considered self-employed? What about shareholders of corporations? 

Here’s a guide to distinguishing these classifications:

What is business ownership?

Business ownership can look a few different ways. For example, a sole proprietor or freelancer technically owns their business, as does a shareholder who owns a stake in a company. A business owner may have founded the business and still manages day-to-day operations, or they may be removed from it completely. Entrepreneurs may also hire employees and contractors to work for the entity. 

Owners get paid either by taking draws or distributive shares. A draw is taken from the business and put into a personal account, which is how a sole proprietor gets paid. A distributive share is money that partners earn in the form of shares, which is outlined in partnership or operating agreements. Dividends are funds received by corporate shareholders, determined by the business’s board of directors.

Business ownership and its different varieties are closely connected with how the entity will pay taxes, so the IRS rules essentially determine ownership types. For example, a sole proprietor and LLC owner will pay self-employment taxes, but not S corporation owners or corporate shareholders.

What is self-employment?

Someone who is self-employed doesn’t work for one employer who compensates them with a regular salary or wage like a traditional W-2 employee. Instead, self-employed workers are often freelancers (or independent contractors) who individually and directly contract with a company (or companies) to provide a service.

Self-employed individuals don’t have access to employer-sponsored benefits like paid time off or health insurance plans, and tax isn’t withheld from their earnings. They have to manage all these moving parts independently and are responsible for paying their taxes every quarter. 

However, independent contractors can generally set their own schedule and decide what clients to work with or projects to take on, allowing for immense flexibility. Self-employed individuals may be independent contractors, sole proprietors, owners of an LLC, or members of a partnership.

Key differences between owners and the self-employed

Any self-employed person also owns their business. But, you can’t turn it the other way—not all business owners are self-employed. Self-employed workers both own their companies and are usually the only ones managing operations. But corporate shareholders, for example, often don’t have that kind of personal involvement in everyday business concerns.

Another way to define a self-employed worker versus a business owner is to determine how each of them gets paid. Typically, a self-employed individual will earn money from work they’re actively doing. In contrast, a business owner can make money from a larger system or company they bought into or created.

Independent contractors, sole proprietors, and single-member LLCs are self-employed, but many large shareholders of corporations are not. This is why S corporation owners don’t pay self-employment tax on business earnings. 

Again, taxes are impacted significantly by the type of business someone decides to create. For example, sole proprietors, LLCs, and partnerships have pass-through taxation, meaning the entity itself isn’t taxed, and income is reported on owners’ individual tax returns. And owners still have to factor in self-employment taxes. 

Corporations can get into a situation of double taxation, where the entity has to pay income taxes on profits, and then the shareholders have to pay taxes on dividends received. But opting to become an S corporation can help avoid double taxation while maintaining the owners’ separation from the company from a liability standpoint.

Questions about business ownership?

If all of this sounds complex, it can be. If you own a business, it isn’t always easy to understand how the different structures will impact your taxes. But tax professionals can guide you through the pros and cons, helping you find the option that meets your goals. 

Provident CPA and Business Advisors assists our clients with minimizing taxes and business planning. Contact us today to learn more.