12 Financial Metrics Small Business Owners Should Track

Operating a small business is an exhilarating and, at times, overwhelming endeavor. There are so many details to keep track of that it’s easy to forget about the nuts and bolts of your organization’s finances – especially if you didn’t start out as a “numbers person.” Whether you’re the one assembling your financial reports or you’ve hired a professional to do it, it’s important for you to know which of the numbers are most important and what they mean in terms of the decisions you make and your assessment of your business’s overall health. Below is our list of 12 of the most important elements of your financial report and what you can do with the information.

1. Profit and Loss

Every quarter, you should refresh your business’s profit and loss report to understand both your bank and tax reporting needs. It is the snapshot of your bottom line that you can use to drive your decisions and show to an outsider for them to gauge your strength. If you have a reconciled balance sheet, it will ensure that everything in your P & L has been captured.

2. Average Cost of Customer Acquisition

We all want customers, especially customers who keep spending or who spend big. Though it’s tempting to assume a “whatever it takes” attitude, you need to know the average cost of acquiring profitable customers and then assess whether you can cut those costs in order to make them even more profitable. Knowing the average cost of customer acquisition can also help you figure out how much to spend on customer retention.

3. Budget Versus Actual

Think you’re sticking to the plan based on what you see in terms of your bank account? The truth is that if you compare what you’ve budgeted to what you’ve actually spent, it will give you a far better sense of whether you’re staying on track and what kind of adjustments you need to make.

4. Cash Flow

Most people consider cash flow the most telling metric of all, and cash certainly is the lifeblood of any company. If you’re not keeping an eye on cash flow, you could find yourself caught off guard when it comes to making essential payments. Make measuring your cash flow, cash burn (the amount you go through monthly) and runway (how much you can operate based on your cash on hand) part of your regular business health check.

5. Fixed Burn Rate

No matter how well you’re doing, there is always the chance that you’re going to encounter some unforeseen circumstance or drop in business that is going to drive the need to cut costs. The best way to do that is to take a close look at your fixed burn rate and make sure it isn’t too high. As tempting as it may be to sign on to a long-term contract to save a little money, if you commit yourself to a payment you can’t afford at all in the future, you may be sorry. You might be better off removing some of those expenses from a contracted status so that you can eliminate them should the need arise.

6. Employee Productivity

Though it’s a given that your employees are your most valuable asset, that doesn’t mean you should be operating without ensuring you’re getting enough value out of them to justify what you’re spending. The best way to do that is to actually monitor each employee’s productivity to make sure everybody is pulling their weight.

7. Operating Cash Cycle

When a business wants to expand, they can’t move forward blindly. They need to have a good handle on how long it takes for cash to become available after their capital investment so they can feel confident in their ability to go through with the plans. Those who fail to understand their operating cash cycle risk joining the ranks of the 82% of businesses that fail due to poor cash flow management (according to U.S. Bank).

8. Churn Rate

When you think about how hard you work to acquire new customers, it’s no wonder that knowing how long you’re holding on to them is a key metric. If you’re churning through customers too quickly, it means that your product or service isn’t valuable enough to them to stick around for more. Understanding how soon they’re leaving, and the reason for it, is the first step in stopping the bleeding and making your business more profitable for the long term.

9. Regulatory Requirements for Your Industry

It’s easy to forget about regulatory requirements such as renewing your industry license or maintaining minimum capital, but failing to keep track of them leads to unnecessarily having to pay noncompliance penalties. Make sure that you include these elements within your financial report and calendar.

10. Projected Profit Loss Versus Actual

A big part of your annual financial plan should include a projection of what you believe your profit and loss will be, as well as a budget for each of your expense areas. Having this will allow you to compare what you projected to what your actual profit and loss is, and to then review where things went askew. Some discrepancies may be explainable and worthwhile, while others may be warnings of things getting out of control.

11. Profit Goals and Profit Per Customer

One of the most effective ways to promote profitability is to take a granular, analytical approach to your profit goals. By determining your short-term and long-term profit goals, you can then break it down to what your profit goal is, per customer, based on either your existing customers or the number of new customers you need to acquire. All of these numbers can drive internal processes and help you get where you want to go.

12. Financial Ratios

Ratios are among the most useful metrics that a small business owner can use to determine the overall financial health of their organization. Among the most important are their liquidity ratio (how much cash you have on hand to pay the monies you owe), efficiency ratio (how much it is costing you to bring in a single dollar) and profitability ratio (profit as it compares to revenue).

Each of these elements is extremely beneficial in helping you understand where your money is at any time. If you’d like to discuss how our services can help you run a successful business, please contact us for more information.