Why EOS Won't Fix Your Cash Flow: What Your Scorecard Is Missing

So having a great operating system doesn't mean that your bank balance is going to grow. Right, right. I mean, great operating system but a little heretical to say like it doesn't work fully across all areas of the business. The people, like EOS people love it and they're gonna push back hard. What do you think they'll say? And good, good. You know, let them. I'd love to have that conversation, right?

And let's sit down over a beer and some snacks and talk about this because there's a lot of good that EOS does do, right? But you tell me where in Traction that you build a 13-week cash flow forecast, right? Show me the chapter on margin by service line. Show me the integrator learning quality of earnings when it's time to sell. I'll wait. Give me the fan mail, give me the sections in the book, or in your implementer's guide.

And I'd love to retract this as episode 15 of hey, EOS does money, that kind of thing. But the reality is, Jon, it's not there. And that's not a flaw in EOS because EOS wasn't designed for that. That's not what its scope was. It was built as an operating system, not as a finance department, right? So the flaw isn't in EOS, it's really in the sales pitch.

My implementers may say that this will run your business and owners hear, this will run all of my business. And those are two different things, right? And I'll go a little bit further, right? The cleanest EOS shop I've ever walked into had a perfect L10. You got good conflict, you're resolving issues, you're doing to-dos. They had an accountability chart that was up to date and current, everybody knew their place.

Everybody was rowing in the same boat, in the same direction, in the same cadence, but they were also 90 days from insolvency, right? Because nobody flagged it. The scorecard didn't have a single cash metric on it. Right. And that's the problem, is that you have to have your KPIs, but it doesn't tell you which KPIs you should have and how, you know, operations affects marketing, that affects sales, that affects cash.

It just doesn't get tied together in Traction. Yeah, you're starting to mention some of the things that specifically it doesn't have, the gaps. So keep going, walk us through some of them. You've mentioned 13-week cash flow forecast, et cetera. Let's roll a few off, the enhancements that have been added in the version that we use at Synergy. Let's go with the gaps first. It's the same thing, ready?

This is the same, two sides of the same coin. So five things, I'm gonna count on my hands, so on my fingers so I don't get lost, right? The first one is that one, a real 13-week cash forecast, right? This is what we use to run every single company. It doesn't matter whether you're on accrual or cash basis. It's forecasting the velocity of your cash coming in and coming out, predicts the shortfalls of what's gonna happen.

It's not about a bank balance, it's not about a vibe, it's really a forward-looking weekly view. And that's gonna tell us exactly where we stand week six, week 12, those kind of things. And more importantly, have the discussions about what we're gonna do about them. And most EOS implementers who aren't finance people, they've led great companies, they sold companies, those kind of things, they don't know how to build one because they're not finance people.

They're good operations people. And that's exactly who you need to run an EOS system, is an operations person. Second, here we go for all those counting at home, a budget that's actually a tool and not just the tax time artifact. It's something that you review, you build it, you can use it as a forecast, right? And that's something that is never talked about in Traction. Third, you need somebody who can actually read the financials, right?

You need a controller or a CFO function, not just a bookkeeper, right? You need somebody that actually can explain, hey, if we do this, here's the economic problems that we're going to have. Or here's the opportunities that we're going to have if we do this. Here's the pros and cons of these things. This is how we're going to leverage debt. This is how we're going to raise the capital to get there.

You have to have somebody with a financial mind and peace that's also talking to the owner, talking to the operational person, talking to the salesperson. And so that gets skimmed over. Four, Profit First or some equivalent of cash discipline. EOS gives you rocks, but Profit First gives you the cash to fund the rocks. That's what you need to have. And you need to tie your rocks to cash.

You need to tie your rocks to Profit First. Those are some of those things that need to happen that get glanced over. And the fifth, five, here we go, I got it, cinco, is a scorecard with financial metrics on it. EOS scorecards, they'll have 12 KPIs and not one of them is about cash or margin or AR over 60 days, right? It's all about operations or it's about sales or leads or marketing or whatever it is.

But it all has to tie back to cash, right? And that's the discipline and that's the problems that I see. Yeah, those are pretty rock solid gaps, right? I mean, in running a business. I'm sure EOS has the structure and the cadence, and it's game changing. When I was first introduced to it, I was like, wow, I've been in business for 15 years. This suddenly makes sense of how to run everything.

But without the information that you just mentioned, you're still flying blind from making decisions. Why don't EOS implementers fix it themselves? Like they're in there, why don't they fix it? I think there's a couple of things. One is it's uncomfortable. It might not be their forte, right? The other one is there's a structural flaw in EOS and they don't know how to fix it. So let me give you an example of, so I have been in EOS implemented, quarterlies and annuals and those kinds of things.

And if you don't have an operating system and you only have EOS to choose from, go for it, right? It's gonna be better than anything else. I wanna say that as a disclaimer as well, right? Operating without an operating system is a no fly zone, don't do it, okay? So something is better than nothing. But here's the thing that happens in a quarterly meeting and it's seven hours plus or minus an hour, right?

We've been in there and here's the breakdown. We got three hours of IDS, we got two hours of rocks, we got one hour of a VTO review, we've got one hour of EOS tools or team building or whatever you have, all very important. You got 30 minutes of a check-in. You know, what's your expectations? What's our priorities? What are those kind of things? How was your business a personal best for the last 90 days?

And then you have 30 minutes of reviewing the prior quarter. Okay, that's it. And it's mostly how did we do on our rocks? Did we complete them or not completing? It's zero or 100%, that's it, right? And then you go through the financial metrics and it's, well, did we hit them or not hit them? There's no discussion. You literally have to try to bring that up in the IDS that happens three hours later.

You get 30 minutes to discuss what happened in the last three months financially. Mix that in with the rocks. That's it. And inside that 30 minutes, you don't have any time. There is no exploration. Well, we were 95% of our goal. Nope, 0% or 100%. And that's the problem with that. So when I say EOS doesn't do money, it's not my opinion, it's a fact. So me sitting there as the CFO, I get maybe 10 minutes of talking about the financials.

There's a lot lying on that. It doesn't have to be all operational, sales and marketing. Yeah, it's the lifeblood of the organization. When you're making decisions about setting rocks, that's a financial decision just as much as it's an organizational, operational one. You want to grow part of the business out? You want to increase sales around a specific area? That's not just a marketing problem. That's a financial problem to say, okay, well, are we able to invest in the business to be able to grow in that area?

Are we set up for success with operational delivery of it, right? So finances infused across all elements of the business. Yeah, so I mean, obviously, there'll be owners out there that are listening of the five people. If there are people, they all are running it and they've already got that problem solved. But if they should be having some aha moments to say, holy crap, these guys are right.

Mostly Ryan is right. I'm just here for cannon fodder. What's the diagnostic? What should they be doing now? How should they be trying to address the gap that you just described? So I think you've got to ask yourself five questions and you need to be really honest with yourself, right? The first one is, can you tell me your cash position for the next 13 weeks? Not just your bank balance, but you projected any cash by week by week.

If not, you have a gap. You're flying blind. You don't know what's going on. Second is, can you tell me your gross margin by service line or product? Last month, what's your forecast for this month, next month, the whole surveying? Or are you just looking at it like, you know, one overall sales gross margin instead of your four product lines or service lines, right? If it's lumped together, you're missing out.

Third is does your scorecard have at least three financial KPIs on it? Cash, margin, AR overdue, does it have Profit First accounts, right? Anything to that effect. Fourth, when you make a $50,000 decision, do you model it before or do you just say yes? My gut says, yeah, we should do this, right? Or do you actually have a scenario saying, well, let's see what this looks like and what that impact is going to be financially and operationally.

And what do we have to do marketing? How do we support that decision? And I think the fifth one is, in your finance, in your accountability chart, who's in your financing? If the answer is, you know, yourself or your bookkeeper, right, you got the wrong person. If you're doing over a million dollars, you need to have somebody else in that seat that's going to help you strategically grow.

And help you make the right decisions for where you're taking your business. We had a conversation recently with an owner who's doing over a million dollars and didn't know his financial earnings, right, his SDE or his EBITDA. I just had no awareness and I think, yeah, that should be something that you're aware of on a week by week basis when you're making decisions. You mentioned scorecard. That's kind of the route to this.

You said most of them are missing financial KPIs. What should be on there? What are the specifics of the KPIs that track financially? So if we're talking about cash, which is what we should be talking about with a lot of these small businesses, is how much cash on hand is there, and we're talking about your QuickBooks balance and we're not talking about your bank balance, right? QuickBooks balance has outstanding checks that haven't cleared yet, right?

And they could be hundreds of thousands of dollars there. Second one is weekly collections versus forecast. How good are our collections? We should be able to project out four, six, eight weeks of our collections with relative certainty because that's how you make decisions. If I know I'm bringing in $250,000 in the next two weeks, I can use that money to fund that new vehicle I wanna buy.

But if I'm seeing a cliff come out in six weeks, maybe I wanna hold off on that purchase and figure out what's going on with my sales department. AR overdue as well is a great collections method. How well are we collecting money? A lot of the owners that we talk to just go in and say, oh, we've got money today. That's fantastic. They have no idea who's paying them and why or how and when.

And that's really dangerous when you're getting up to four, five, six million dollars, right? You're just counting and praying on the money that's coming in. And I think, you know, we also have to take a look at, you know, our gross margin percentage, right? Our revenue per employee. Those are the metrics that will help us forecast, you know, our, and anticipate our hiring needs. So if our revenue per employee is starting to skyrocket, right, then we have to look at our operations and our utilizations and say, okay, we're at about 95% capacity, we can't take on another job, we need to hire. Right?

Those are those things that will help you. Quick word from our sponsor, EZ Mobility Solutions, our fifth listener. Oh, here we go. What? You're about to make this a metaphor for fractional CFOs. I can feel it. I was not going to. You were. Your eye twitched. That's involuntary, Jon, but fine. Just the facts. EZ Mobility installs ramps, stairlifts, accessible bathrooms, power chairs. They get people unstuck. That's the whole business. And? And nothing. That's it. A great company that helps families.

Wait, no fractional CFO comparison? No business ramp callback? I'm holding it in. Yeah, you're sweating, Ryan. This is the hardest sponsor read of my life. Free home solutions, lifetime warranty, Virginia and the surrounding areas. EZMobilitySolutions.com and if your business also needs a stairlift, well, that's a different podcast. Who couldn't help himself? Yeah, trending those things out over time is important, right? Like you don't know that number, like each business is entirely different with what those metrics, where those metrics need to balance out and level out. So you have to track it over time to be able to understand. Well, if my revenue per employee is actually rocketing up too high, that's a warning sign.

That means you need more people to be able to scale, but obviously you need a baseline to be able to make some of those decisions and understand the level that it needs to be at. So these things have to be implemented over time and tracked. They absolutely do. If your sales are going up and your gross margin percentage is going down, you're just taking every job to pay payroll.

You want to make sure that you're growing profitably. But what I'm seeing with most EOS scorecards when we bring these folks on is that it's really heavily sales activity, right? It's about calls made, dialing for dollars, demos booked, proposals sent. Those things are fine, but how do they relate to dollars, right? How do they relate to cash? That's the missing piece, is that you can have all the sales activity in the world, but it might not translate to your bank account.

Okay, so that's metrics, that's scorecard, that's gaps. What about rocks? Rocks, I think, is the most important way for an organization to move forward. And a lot of the rocks are revenue based. We want to move from X to Y in revenue. Let's hit a target of $5 million this quarter and improving profit margins. Isn't that EOS doing money to some extent? It's EOS naming money, right?

Not doing money. That's a big difference, right? It's like naming a hurricane, but it doesn't stop the hurricane, right? So hitting $5 million in revenue is a wish. Hurricane 1. That's what it is. That's right. Hurricane 1 coming through your town in rural Canada. So I mean, hitting $5 million in revenue is a fantastic rock, right? And it's a wish, you know, with a deadline, right? I want to hit this in 90 days.

I got 90 day sprints. I got whatever you're going to call it. But it's a rock that it didn't tell you what the pricing model is. So if we're just going to have 5 million to have 5 million in sales, fantastic. Great goal. But if you're doing $5 million in sales and you're losing money, was that really the rock that you wanted? So we want to talk about that and say, well, how do we get there?

What's the cash required to get there? What's the gross margins that we have to hit? What's the capacity that we have to have to take on those extra jobs, right? And so EOS always asks for the headline, right? But it doesn't ask for the math underneath. And that's the problem with setting a sales rock, is did we set the rock well enough that it would be profitable?

And I think that, you know, that's one of the things. So EOS has six tools in their priority list, right? It's number one is LMA, so that's leadership management, holding people accountable. Then they have the three-step process documenter, which is fantastic, and people should have their processes documented. And then they have their cash tool, which is the, you know, they call it the eight cash flow drivers, which is a fantastic exercise to have, right?

How do we affect cash flow with operations, sales and marketing, finance, if you're lucky, those kind of things. And then it has Kolbe, which is a personality assessment, and then the five rules, and then trust builders. So your cash tool is ranked in the middle at third, behind process documentation, and ahead of a personality test, right? That's the official EOS recommendation. That's how much real estate cash gets in their methodology.

Right. I failed my personality test, by the way. I actually took one for a job and I failed. Instead, I was cheating. How do you fail a personality test? Are you sure that wasn't the IQ test? Could be the same thing. Yeah. So, I mean, practically... My mom had me tested and I'm not insane. Just to let everybody know. Okay. I'm not sure. Mothers always say whatever is necessary to make sure we're healthy, right?

Yeah. You said I was special. Needs. Yeah. Yeah. So you left that out, but thanks, Jon. We all are. Unique individuals. Practically, what does an owner need to combine EOS with to really be whole here, running their business? So when you hit a million dollars, you've hit the big time, right? It's no longer a proof of concept. You've got a real thing here. So the first thing that you always have to do is make sure you have clean books, right?

Is that you want to make sure that your monthly close happens by day 10 and not day 30 so that you have accurate information in a timely manner, right? If we're making decisions based upon 90 day old data, it's not a good decision, right? The world changes in a minute, let alone 90 days, right? The second one is that you certainly should have a controller type function, which is essentially, does this stuff make sense, right?

Did the bookkeeper book everything correctly, or is there some adjustments that need to be made out of the thousands of transactions that are made? Bookkeepers keeping up as best as possible, but you gotta make sure that it all makes sense and that you start doing some analysis as well. Why is utilities expense up higher than it was the last three months, right? Those kind of things. And have somebody dig in there and get some answers.

And the third thing is you need a CFO. You need somebody that's gonna be able to take a crystal ball and help you start forecasting, right, and they sit in your L10, and they are your financial head to talk about operations and sales and marketing. Like every, you know, operations should have helped make decisions financially. Right? They should be able to talk outside of their realm and see how their decisions are affecting sales and marketing or they're affecting the owner's retirement plan for the next three years or finance, right?

Everyone needs to sit down together and understand their roles and how they can help each other go to that one goal. So I think then and only then is that then you wire in your operating system. You got to have those financial people in place first, so then you can then bring on an EOS or bring on an SOS or Pinnacle, wherever you want to go with that, because then you're going to have financial KPIs in the scorecard, not just sales, not just offerings, but also the decisions that we're making in this meeting today, the decisions that we make on a daily basis, how are they affecting things?

That's what those KPIs are going to record financially. Awesome. Owners are going to hear, you need a CFO and assume it's expensive and that we're touting ourselves. Our podcast really isn't about touting ourselves. It's about just simple financial truths that we want to share. Honestly, that's the message here. It's not about, you know, it's not a sales channel. It's really just trying to share good information for people to be able to improve their business.

But they're gonna hear CFO, and of course, there are fractional CFO options as well. I assume it's super expensive. What is it actually cost compared to what they're already spending on EOS? Because EOS is not cheap. It is not cheap, right? Anything under $500,000, right, you don't need a fractional CFO, right? Keep growing, doing what you got to do. When you start getting up to 500 or a million dollars, that's when you really start needing to have additional help that's beside you. Somebody that has a financial perspective, right? That's their job. So let's do the math, right?

And I always relate it to return on investment, ROI, right? If we get a good EOS quarterly implementer, right? So they come in quarterly, they do our vision day, they do our annuals, those kind of things. It's roughly going to be between $3,000 and $15,000 a session. Some of these implementers are costing $15,000 and hey, they're worth it. You get what you pay for, they'll give you some great advice and set some quality rocks and those kind of things.

But now we're talking between $20,000 and $75,000 for those sessions. So that's a lot of money. And so what is our return on investment? Is our bottom line growing? Is our margins getting better? Is the cash in our bank growing? That's how you can measure these sessions over time. Well, if you want a fractional controller, right, depending on how much time you want, they can be as little as $1,500 to $3,000 a month, right, where you have clean financials, and then depending on time as well you could have a CFO. So that's between $3,000 and $8,000 a month.

Who's going to your EOS quarterly sessions with you? Making sure that everything that's said in that room is being transferred over and that the goals are being reached on a weekly basis. And so for a $2 million, a $10 million business, for a CFO and controller, that's $50,000 to $100,000. Where if you brought somebody on full time, they would be more than $100,000 just for a controller, right, regardless of where you live, right?

So we've found that a good fractional CFO who understands the framework of a good operating system, right, who can dive into your numbers, give you a perspective that you don't have, see things that you don't see, right? Let's say it's $6,000 a month, right? And they talk you out of a bad $325,000 decision because you're modeling it out and saying, well, the math just doesn't work now or we don't have the infrastructure in place to do this.

We don't have that kind of capital to invest in something, right? That's a 4,500% return right there in one month. Right? So I think that owners spending $30,000 on EOS and zero on a fractional CFO, it's like running a Ferrari with no oil. The dashboard is gorgeous, the engine is about to seize, but hey, we've got a 10 on the L10. You just made CFOs sound really, really cool by comparing yourself to a Ferrari or the oil.

Let me be clear. Oil, because I sprung the leak. Okay, okay. Comfort break time. No, you're right. It was the oil you were comparing yourself to, not the Ferrari. The EOS is a Ferrari, or CFO is the oil, I guess. Awesome. Attention span of a gnat, Jon. What's that? You have attention span of a gnat. I didn't hear you. I moved on to the next thing. Us creative types, that's what we do.

Move on quick. I got another good idea. Okay, last one. If an owner is listening right now, I'm going to do one thing this week after hearing this podcast. What is it? Open your scorecard, right? Count the financial KPIs on it, right? You get five to 15 KPIs. How many are in financial, right? If it's zero, congratulations, you know where to begin. If you've got a few, are they the right ones?

And I think add these, kick some of these other ones out that might not be necessary, but your cash on hand and your AR over 60 days, or your AR overdue, and keep track of those. And I think you're going to see that when you measure things, they get done. And when you're paying attention to them, they get your priority. And so you'll see that your cash will start growing just by making those two numbers a priority, right?

I think also you need to ask your implementer at the next session, you know, who owns the finance seat in our accountability chart, right? And then watch the room and see who it is. If it's you, right, you're wearing multiple hats in your EOS sessions, right? Maybe it's time to bring somebody in. And I think for this whole episode, I think that, you know, everyone should understand that finance is just as important as operations and sales and marketing and getting the business to its goal.

And it needs an equal seat. Awesome. That cues us up perfectly for the takeaway. What is the takeaway, Ryan? EOS, Jon, runs your business, but it does not run your money. Rocks without forecasts are just wishes. All tens without financial KPIs are theater. Scorecards without cash on them are participation trophies. If you're running EOS without a controller or a CFO in that function next to it, you don't have an operating system.

You have half of one. Build the other half this quarter. Stop being surprised when the meetings get cleaner and the bank account doesn't. Get a CFO, get a controller, and watch your cash grow. Awesome. Sound byte after sound byte. I love it. Tick tock, tick tock. All right, signing off. Brian and Juan. Juan and Leon. That'll do it for this episode of From Burnt Out to Bought Out.

If anything we talked about today hit home, do us a favor. Share this episode with another owner who needs to hear it. And if you're sitting there thinking, they're talking about me, good. That's the first step. Head to the show notes and book a free triage call with our team. No pitch, no pressure, just a real conversation about where you are and what's possible. You can also find us on LinkedIn and at WeAreSynergySolutions.com.

New episodes drop every week. Until next time, stop running the treadmill and start building something you can actually sell.