The 5 Financial Gaps EOS Won’t Fix | FBO2BO EP 8

Introduction:
Welcome to From Burnout to Bought Out, the podcast for business owners who are tired of being the hardest-working, lowest-paid employee in their own company. I’m Jon, joined as always by Ryan, and together we’ve spent years inside owner-led businesses helping founders go from running on fumes to running a business that actually runs without them.

Every episode, we break down the real problems nobody talks about: the burnout, the bottlenecks, the blind spots and show you what it looks like to build a business that’s profitable, sellable, and doesn’t need you in the building every day to survive.

Whether you’re grinding through a plateau, thinking about an exit, or just trying to take a vacation without your phone blowing up, you’re in the right place. Let’s get into it.

Good afternoon, Ryan.

Ryan:
Good afternoon, Jon—or Juan in Español, or Jon in Wales. Yeah, or Yanni in Greek. There are many, many ways to say your name.

Jon:
Variations on my name, as long as they’re not swear words, I’m happy.

Ryan:
Well, not that you hear, I’m sure.

Jon:
Oh, I hear them quite a bit at home.

Ryan:
Yeah, but I’ll keep my wife out of this for now.

Jon:
We should have her on one day.

Ryan:
You need a two-year-old.

Jon:
Yeah, amongst the rest of them.

Ryan:
Oh yeah, let’s have your wife on. We’ll do a therapy session, and we’ll have the listeners vote on who won.

Jon:
That would be particularly uncomfortable for you.

Ryan:
That’d be entertaining.

Jon:
Oh, we’re going to have to announce that.

Ryan:
We should have both of our wives on at some stage, and then they can completely deconstruct us.

Jon:
I’m sorry, I didn’t hear that. It was technical difficulties.

Ryan:
Yeah, exactly. Quite right, my dear.

Jon:
All right, we are talking about something quite specific this week.

Ryan:
It’s a good topic. I like it.

Jon:
Well, I chose it.

Ryan:
You came up with it, but I picked it.

Jon:
Do I get any credit?

Ryan:
Yeah, nice. It’s usually a show about nothing, and now we’re talking about something.

Jon:
For once. We just tallied up our listeners. What’s the topic today, Jon?

Ryan:
The topic today?

Jon:
That’s right.

Ryan:
What’s that?

Jon:
We’ve got five listeners now, not four.

Ryan:
Mr. David Todd, owner of Easy Mobility Solutions in Roanoke, Virginia, let us know that he is indeed our fifth listener. So, in his honor, we’re going to make him a sponsor for this episode.

You get what you pay for, David—which is a $0 sponsorship and a great ad.

Jon:
You paid him to listen to it, right?

Ryan:
Effectively, we pay for you to become a sponsor.

Jon:
That’s right. You get a door prize at five listeners.

Ryan:
We have way more than five.

Jon:
I’m just saying we have way more than five.

Ryan:
Well, maybe seven. Seven is a bigger number than five.

Jon:
We’re almost at three digits for downloads and subscribers, so we’re getting there. We’re hitting the big time now.

Nothing like sharing your underwear with your audience.

Ryan:
That’s right. Well, I’m looking forward to fan mail or hate mail—either way.

Jon:
Yeah.

You said David laughed out loud at one moment, so out of all of our episodes, there was one moment—all this Purell humor—and there was one funny bit. We’ll take it.

Ryan:
That’s right.

Jon:
That’s right. We’re good for every five episodes to get a laugh-out-loud moment.

Ryan:
Yeah, exactly.

Jon:
It’s the law of percentages, right? You just keep going. We’re both married. We hit the jackpot in the end.

Ryan:
Just got to keep asking.

Jon:
That’s right.

Ryan:
That’s right. We’re good for a laugh-out-loud moment every five episodes.

Jon:
Yeah, exactly.

It’s a law of percentages, right? You just keep going. We’re both married—we hit the jackpot in the end.

Ryan:
Just got to keep asking.

Jon:
That’s right. That’s right.

All right, let’s get to it. EOS doesn’t do money.

So, EOS—obviously, the Entrepreneurial Operating System—is a widely used operating system. We love it. We think it’s a great framework and a great foundational system. It gives you rocks, issues, leadership structure, and L10 meetings that help you run your business.

However, we feel quite strongly that it doesn’t provide everything to everyone. It doesn’t do money well.

So, let’s start with the punchline. What do you mean when you say EOS doesn’t do money?

Ryan:
Yeah. So, just to be clear, EOS is a brilliant operating system, and it was a game changer for small businesses trying to operate like larger organizations.

And let the hate mail begin as we go into this episode.

But there are some things EOS doesn’t do. We run a version of it every single day with our clients, and we rely heavily on its framework. We also incorporate elements of Pinnacle and some other operating systems as well, based on what we’ve learned works best for our clients.

So, I’m not throwing rocks at rocks. Pun intended.

But here’s the part nobody on the EOS side says out loud: Traction—which I own in both English and Spanish, by the way—is an operational book. It barely mentions cash.

And as we know, cash is what we’re all about here.

All your hard work, your revenue, your marketing—everything has to lead to one thing: cash in the bank. And that’s something EOS doesn’t do very well.

It doesn’t teach you how to read a P&L.

It doesn’t build you a forecast.

It doesn’t tell you when you’re nine weeks away from missing payroll.

It’s about rocks, issues, L10s, GWC, IDS—all useful tools—but none of them are financial. They’re nouns.

Cash, in our world, is a verb.

Owners install EOS, the meetings get cleaner, the bank account stays exactly the same, and they act surprised.

The system never promised to fix that. They just assumed it would.

So, having a great operating system doesn’t mean your bank balance is going to grow.

Jon:
Right. Right.

I mean, it’s a great operating system, but it’s a little heretical to say it doesn’t fully work across all areas of the business.

EOS people love EOS, and they’re going to push back hard. What do you think they’ll say?

Ryan:
Good.

Good. Let them.

I’d love to have that conversation. Let’s sit down over a beer and some snacks and talk about it, because there’s a lot of good that EOS does do.

But show me where in Traction you build a 13-week cash flow forecast.

Show me the chapter on margin by service line.

Show me where the Integrator learns about quality of earnings when it’s time to sell.

I’ll wait.

Send me the fan mail.

Show me the section in the book—or in the Implementer Guide.

And I’d be happy to retract all of this in Episode 15 and say, “Hey, EOS does money.”

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 wasn’t its scope.

It was built as an operating system, not as a finance department.

So the flaw isn’t in EOS.

The flaw is in the sales pitch.

Implementers may say, “This will run your business.”

Owners hear, “This will run all of my business.”

Those are two very different things.

Ryan:
And I’d be happy to retract all of this in Episode 15 and say, “Hey, EOS does money.”

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 wasn’t its scope.

It was built as an operating system, not as a finance department.

So the flaw isn’t in EOS. It’s really in the sales pitch.

Implementers may say, “This will run your business.”

Owners hear, “This will run all of my business.”

Those are two very different things.

And I’ll go a little further.

The cleanest EOS company I’ve ever walked into had a perfect L10.

They had healthy conflict. They were resolving issues. They were completing to-dos.

Their accountability chart was current and up to date.

Everybody knew their role.

Everybody was rowing in the same direction, in the same boat, at the same cadence.

But they were also 90 days from insolvency.

Why?

Because nobody flagged it.

The scorecard didn’t have a single cash metric on it.

And that’s the problem.

You have to have KPIs, but EOS doesn’t tell you which KPIs you should have or how operations affect marketing, how marketing affects sales, and how sales affect cash.

It doesn’t tie everything together financially.

That’s where Traction falls short.

Jon:
Yeah.

You’re starting to mention some of the specific gaps.

So keep going.

Walk us through them.

You’ve already mentioned the 13-week cash flow forecast.

Let’s roll through some of the enhancements we’ve added in the version we use at Synergy.

Ryan:
Let’s start with the gaps first.

They’re really two sides of the same coin.

So, five things.

I’m going to count on my fingers so I don’t get lost.

First: a real 13-week cash flow forecast.

This is how we run every company.

It doesn’t matter whether you’re on an accrual basis or a cash basis.

We’re forecasting the velocity of cash coming in and cash going out.

It’s predicting shortfalls before they happen.

It’s not about your bank balance.

It’s not about a feeling.

It’s a forward-looking weekly view.

It tells us exactly where we’ll stand in Week 6, Week 12, and beyond.

More importantly, it gives us time to have conversations about what we’re going to do before the problem arrives.

Most EOS implementers aren’t finance people.

They’ve led great companies.

They’ve sold great companies.

But they don’t know how to build a cash flow forecast because they’re not finance professionals.

They’re operations people.

And that’s exactly who you want running an EOS system.

Second—and for those counting at home—a budget that’s actually a management tool and not just a tax-time artifact.

A budget should be reviewed.

It should be built intentionally.

It should function as a forecast.

That’s something Traction never really talks about.

Third, you need someone who can actually read financial statements.

You need a Controller or CFO function—not just a bookkeeper.

You need someone who can explain:

“If we make this decision, here are the financial risks.”

“If we make this decision, here are the financial opportunities.”

Someone who can evaluate debt.

Someone who can help raise capital.

Someone who can provide financial context for operational decisions.

That person needs to be talking to the owner, the operations leader, and the salesperson.

And that role often gets skimmed over.

Fourth, you need Profit First—or some equivalent cash-discipline system.

EOS gives you rocks.

Profit First gives you the cash to fund those rocks.

The two need to work together.

Your rocks should connect directly to cash and profitability.

That’s another area that often gets overlooked.

And fifth—and yes, I made it to five, cinco—you need a scorecard with financial metrics on it.

Most EOS scorecards have twelve KPIs, and not one of them measures cash, margin, or accounts receivable over 60 days.

They’re usually operational metrics.

Sales metrics.

Marketing metrics.

Lead-generation metrics.

All useful.

But every one of those metrics should ultimately tie back to cash.

That’s the discipline that’s missing.

And that’s the problem I see over and over again.

Jon:
Yeah, those are pretty rock-solid gaps.

I mean, when it comes to running a business, EOS gives you the structure and the cadence. It’s game-changing.

When I was first introduced to it, I thought, “Wow, I’ve been in business for 15 years, and this suddenly makes sense of how to run everything.”

But without the information you just mentioned, you’re still flying blind when it comes to making decisions.

Why don’t EOS implementers fix it themselves? They’re already in there. Why don’t they address it?

Ryan:
I think there are a couple of reasons.

One is that it’s uncomfortable. It might not be their area of expertise.

The other is that there’s a structural flaw in EOS, and they don’t necessarily know how to fix it.

Let me give you an example.

I’ve been through EOS quarterly and annual planning sessions many times.

And if you don’t have an operating system and EOS is your only option, go for it.

It’s going to be better than having nothing.

I want to be very clear about that.

Operating without an operating system is a no-fly zone. Don’t do it.

Something is better than nothing.

But here’s what happens in a typical quarterly meeting.

It’s usually seven hours, give or take an hour.

Here’s the breakdown:

• Three hours of IDS.
• Two hours on rocks.
• One hour reviewing the VTO.
• One hour on EOS tools, team-building exercises, or similar activities.

All important.

You also get about 30 minutes for check-ins.

What’s your expectation?

What are your priorities?

What were your business and personal wins over the last 90 days?

Then you get about 30 minutes to review the prior quarter.

That’s it.

And most of that discussion is simply:

“Did we complete the rock?”

Yes or no.

Zero percent or one hundred percent.

Then you review financial metrics:

“Did we hit the number or not?”

There’s very little discussion.

If you want to dive deeper into the financials, you have to bring it up during IDS—which happens three hours later.

So you get roughly 30 minutes to discuss what happened financially over the previous three months.

That’s not much time.

There’s no real analysis.

No discussion around being at 95% of goal.

It’s either success or failure.

Zero or one hundred percent.

That’s the problem.

So when I say EOS doesn’t do money, it’s not an opinion.

It’s a fact.

As the CFO sitting in that room, I might get ten minutes to discuss the financial health of the company.

There’s a lot riding on that.

The conversation shouldn’t be entirely about operations, sales, or marketing.

Jon:
Yeah.

Finance is really the lifeblood of the organization.

When you’re setting rocks, that’s a financial decision just as much as it’s an operational one.

If you want to grow a specific part of the business or increase sales in a particular area, that’s not just a marketing question.

It’s a financial question.

Can we afford the investment?

Do we have the operational capacity to deliver?

Are we positioned for success?

Finance touches every element of the business.

Ryan:
Exactly.

Obviously, there are going to be business owners listening—maybe all five of them—who already have this figured out.

If they’re our clients, they probably do.

But most owners should be having an “aha” moment right now.

They should be thinking:

“Wow. These guys might actually be right.”

Mostly me, of course.

Jon’s just here for cannon fodder.

Jon:
Fair enough.

So what’s the diagnostic?

What should business owners be doing right now?

How do they identify whether they have this gap?

Ryan:
I think you need to ask yourself five questions.

And you need to answer them honestly.

Question #1:
Can you tell me your cash position for the next 13 weeks?

Not your bank balance.

Your projected ending cash position week by week.

If not, you have a gap.

You’re flying blind.

Question #2:
Can you tell me your gross margin by service line or product?

Not overall.

Can you tell me what it was last month?

What it is this month?

What it’s projected to be next month?

If everything is lumped together, you’re missing valuable information.

Question #3:
Does your scorecard contain at least three financial KPIs?

Cash.

Margin.

Accounts receivable overdue.

Profit First account balances.

Anything that measures financial health.

Question #4:
When you make a $50,000 decision, do you model it first?

Or do you simply say:

“My gut says we should do it.”

Do you actually build a scenario and evaluate the financial impact?

The operational impact?

The marketing requirements?

The risks and opportunities?

Question #5:
Who owns the finance seat on your accountability chart?

If the answer is “me” or “my bookkeeper,” that’s a problem.

If you’re doing over a million dollars in revenue, you need someone in that seat who can help you grow strategically and make better financial decisions.

We recently spoke with a business owner doing more than a million dollars in revenue who didn’t know their SDE or EBITDA.

They had no awareness of those numbers.

That’s something you should understand on a regular basis if you’re making strategic decisions.

Jon:
You mentioned scorecards earlier.

That’s really the root of this conversation.

You said most scorecards are missing financial KPIs.

What should actually be on them?

What financial metrics should owners be tracking?

Ryan:
If we’re talking about cash—and that’s what most small businesses should be focused on—the first metric is cash on hand.

And I’m talking about your QuickBooks balance.

Not your bank balance.

Your QuickBooks balance reflects outstanding checks and liabilities that haven’t cleared yet.

Sometimes that difference can be hundreds of thousands of dollars.

Second, weekly collections versus forecast.

How are collections performing against expectations?

We should be able to forecast collections four, six, even eight weeks out with reasonable confidence.

That’s how you make informed decisions.

If I know $250,000 is coming in over the next two weeks, I may decide to purchase a new vehicle.

If I see a revenue cliff six weeks away, I might delay that purchase and investigate what’s happening in sales.

Third, accounts receivable overdue.

How effectively are we collecting money?

Many owners simply look at today’s bank balance and say:

“We’ve got money. We’re fine.”

But they don’t know who’s paying, when they’re paying, or whether they’re paying at all.

That’s a dangerous way to operate, especially when you’re running a multi-million-dollar business.

Ryan:
Many business owners have no idea who’s paying them, why they’re paying them, how they’re paying them, or when they’re paying them.

And that’s really dangerous when you’re operating at four, five, or six million dollars in revenue.

At that point, you’re basically counting on—and praying for—the money to show up.

We also need to look at metrics like gross margin percentage and revenue per employee.

Those metrics help us forecast and anticipate hiring needs.

If revenue per employee starts skyrocketing, we need to look at our operations and utilization rates and ask:

“Are we approaching capacity?”

If we’re running at 95% capacity, we probably can’t take on another job.

We need to hire.

Those are the kinds of metrics that help you make proactive decisions.

Jon:
Quick word from our sponsor, Easy Mobility Solutions—our fifth listener.

Ryan:
Oh, here we go.

Jon:
What?

You’re about to turn this into a metaphor for fractional CFOs. I can feel it.

Ryan:
I was not going to.

Jon:
You were.

Your eye twitched.

Ryan:
It’s involuntary, Jon, but fine.

Just the facts.

Easy Mobility Solutions installs ramps, stairlifts, accessible bathrooms, and power chairs.

They help people get unstuck.

That’s the business.

Jon:
And?

Ryan:
And nothing.

That’s it.

They’re a great company that helps families.

Jon:
Wait.

No fractional CFO comparison?

No business-ramp callback?

Ryan:
I’m holding it in.

Jon:
Yeah, you’re sweating, Ryan.

Ryan:
It’s the hardest sponsor read of my life.

Free home assessments, lifetime warranties, and service throughout Virginia and the surrounding areas.

EasyMobilitySolutions.com.

And if your business also needs a stairlift… well, that’s a different podcast.

Jon:
He couldn’t help himself.

Ryan:
Yeah.

Tracking these metrics over time is important.

Every business is different.

The numbers that represent healthy performance for one company may not apply to another.

You need historical data to establish your baseline.

If revenue per employee starts increasing too quickly, that’s often a warning sign.

It usually means you’re approaching capacity and need additional staff in order to continue scaling.

But you can’t know that without tracking the numbers consistently over time.

Jon:
So these things need to be implemented and tracked continuously.

Ryan:
Absolutely.

If sales are increasing but your gross margin is decreasing, you’re basically taking every job you can get just to make payroll.

That’s not healthy growth.

You want profitable growth.

What I see in most EOS scorecards is an overwhelming focus on sales activity.

Calls made.

Dials completed.

Demos booked.

Proposals sent.

Those metrics are fine.

But how do they connect to dollars?

How do they connect to cash?

That’s the missing piece.

You can have all the sales activity in the world, but it may never translate into money in your bank account.

Jon:
Okay.

So we’ve talked about metrics.

We’ve talked about scorecards.

We’ve talked about gaps.

What about rocks?

Rocks are probably the most important mechanism for moving an organization forward.

And many rocks are revenue-based.

For example:

“We want to grow from X to Y in revenue.”

“We want to hit five million dollars.”

“We want to improve profit margins.”

Isn’t that EOS doing money to some extent?

Ryan:
That’s EOS naming money.

Not doing money.

There’s a big difference.

It’s like naming a hurricane.

Naming it doesn’t stop it.

Jon:
That’s right.

Hurricane Ryan rolling through rural Canada.

Ryan:
Exactly.

Look, setting a rock that says:

“We want to hit five million dollars in revenue.”

That’s a great goal.

It’s a wish with a deadline.

Maybe it’s a 30-day goal.

Maybe it’s a 90-day sprint.

Whatever you call it.

But that rock doesn’t tell you anything about the economics underneath it.

It doesn’t tell you the pricing model.

It doesn’t tell you the margin requirements.

It doesn’t tell you the cash requirements.

If the goal is simply to hit five million dollars in revenue, great.

But what if you’re doing five million dollars in sales and losing money?

Was that actually the right rock?

Probably not.

The real conversation should be:

How do we get there?

What level of profitability do we need?

What level of cash investment is required?

What pricing strategy supports that goal?

Those are the questions that have to sit underneath the rock.

Ryan:
What’s the cash required to get there?

What gross margins do we need to hit?

What level of capacity do we need to take on those additional jobs?

EOS asks for the headline.

It doesn’t ask for the math underneath the headline.

And that’s the problem with a sales rock.

Did we build the rock in a way that would actually be profitable?

That’s the question.

EOS has six major tools in its priority list.

Number one is LMA—Leadership, Management, and Accountability.

Then there’s the Three-Step Process Documenter, which is fantastic. Every business should have documented processes.

Third is the cash tool—the Eight Cash Flow Drivers.

And it’s a great exercise.

It helps you think about how operations, sales, marketing, and finance affect cash flow.

After that, you have Kolbe, which is a personality assessment, followed by the Five Rules and Trust Builders.

So the cash tool ranks third.

It’s behind process documentation and ahead of a personality test.

That’s the official EOS priority order.

That’s how much real estate cash receives in the methodology.

Jon:
I failed a personality test once.

I actually took one for a job and failed it.

They said I was cheating.

Ryan:
How do you fail a personality test?

Are you sure it wasn’t an IQ test?

Jon:
Could have been the same thing.

Ryan:
Yeah.

Jon:
For the record, my mom had me tested and I’m not insane.

Just so everybody knows.

Ryan:
I’m not sure mothers are always the most objective source when it comes to those things.

Jon:
That’s fair.

She said I was special.

Ryan:
Special needs.

Jon:
Yeah, she left that part out.

Thanks.

We are all unique individuals.

Practically speaking, what does an owner need to combine with EOS to truly have a complete system for running their business?

Ryan:
When you hit a million dollars in revenue, you’ve moved beyond proof of concept.

You’ve got a real business.

At that point, the first thing you need is clean books.

Your monthly close should happen by Day 10, not Day 30.

You need accurate information in a timely manner.

If you’re making decisions using 90-day-old data, you’re making bad decisions.

The world changes in a week, let alone three months.

Second, you need a Controller-type function.

Someone whose job is to ask:

“Does this actually make sense?”

Did the bookkeeper categorize everything correctly?

Do the financials tell a coherent story?

When thousands of transactions are flowing through the business, mistakes happen.

You need someone reviewing the data and analyzing trends.

Why are utility expenses suddenly higher than the last three months?

Why is gross margin dropping?

Why are collections slowing down?

Someone needs to investigate and find the answers.

Third, you need a CFO.

You need someone with a crystal ball.

Someone who can forecast.

Someone who sits in your L10 meetings and represents the financial perspective.

Every decision made by operations, sales, or marketing has a financial consequence.

The CFO’s role is to connect those dots.

Operations should understand how their decisions affect cash.

Sales should understand how pricing affects profitability.

Marketing should understand how acquisition costs affect margins.

Everyone should understand how their decisions contribute to the same goal.

Only after those financial functions are in place should you layer in an operating system.

Then EOS becomes dramatically more powerful.

Because now your scorecard contains financial KPIs.

Now you’re measuring more than activity.

You’re measuring outcomes.

You’re measuring how today’s decisions affect the future financial health of the company.

Jon:
That’s a great point.

Owners are going to hear “CFO” and immediately assume it’s expensive.

They’re also going to assume we’re pitching our own services.

But that’s really not what this podcast is about.

This isn’t a sales channel.

We’re trying to share practical financial truths that help business owners improve their businesses.

Still, when people hear “CFO”—even a fractional CFO—they assume it’s going to cost a fortune.

So what does it actually cost?

And how does that compare to what they’re already spending on EOS?

Because EOS isn’t cheap.

Ryan:
No, EOS isn’t cheap.

And to be clear, if you’re under $500,000 in annual revenue, you probably don’t need a fractional CFO yet.

Keep growing.

Focus on building the business.

But once you’re in the $500,000 to $1 million range—and certainly beyond that—you start needing someone beside you who brings a financial perspective.

That’s their job.

Let’s look at it through the lens of ROI.

A good EOS Implementer who facilitates your quarterly sessions, annual planning, Vision Day, and related activities will typically cost somewhere between $3,000 and $15,000 per session.

Some implementers are.

Thanks for listening to From Burnout to Bought Out.

If you found this episode valuable, be sure to subscribe, leave a review, and share it with another business owner who could benefit from the conversation.

Until next time, keep building a business that is profitable, scalable, and able to thrive without depending on you every day.