Your business finances are more than how much is coming in and going out.
But you need to know more than this to really understand the heartbeat of your business finances.
That’s where financial KPIs come in.
They’re like little signposts that show you where your business is headed and where you might need to make adjustments.
But with so many numbers flying around, it can be hard to know which ones actually matter.
Let’s cut through the noise and focus on the top 5 financial KPIs every small business owner should track.
1. Gross Profit Margin
This is one of the most important financial KPIs to measure the health of your business.
Gross profit margin tells you how much money you’re making after covering the direct costs of producing your goods or delivering your services.
It’s calculated by subtracting your cost of sales (materials, labour directly tied to the product or service) from your revenue, then dividing that number by your revenue, and multiplying by 100 to get a percentage.
A healthy gross profit margin means you’ve got room to cover your overheads and make a profit.
If your margin is too low, it might be time to look at pricing or controlling costs.
2. Net Profit Margin
Net profit margin goes a step further than gross profit by looking at your overall profitability after all expenses, including overheads, taxes, and interest.
It shows how much of your sales actually end up as profit in your pocket.
To calculate it, divide your net profit by your total revenue and multiply by 100.
A strong net profit margin is a sign that your business is operating efficiently and sustainably.
3. Cash Flow
Cash flow is often called the lifeblood of a business and for good reason.
It’s not just about what’s profitable on paper. It’s about making sure you’ve got enough money in the bank to pay your bills, staff, suppliers, and yourself.
Tracking cash flow helps you understand how money moves in and out of your business and shows you when you might face a shortfall.
You can use a simple cash flow forecast to plan ahead and avoid nasty surprises.
At Legacy Figures Accountancy, we focus on your finances so you can focus on your business.
Want to learn more? Let’s have a chat.
4. Accounts Receivable Days
Getting paid on time can make or break your cash flow.
Accounts receivable days (sometimes called debtor days) measure how long, on average, it takes for your customers to pay you.
The longer it takes to get paid, the more cash you’re tying up in unpaid invoices.
To calculate it, divide your accounts receivable by your total sales, then multiply by the number of days in the period you’re measuring (usually 30 days for a monthly figure).
A lower number means faster payments and healthier cash flow.
5. Break-Even Point
Your break-even point is the level of sales you need to cover all your costs no profit, no loss.
Knowing this figure helps you set sales targets, price your products or services effectively, and plan for growth.
To calculate it, divide your fixed costs by your gross profit margin (as a decimal).
If you’re consistently above your break-even point, you’re in the black. If not, it’s time to review your costs and pricing.
Final Thoughts: Measure What Matters
Keeping track of your financial KPIs doesn’t have to be complicated or time-consuming.
By focusing on the key metrics that really matter, you can get a clear picture of your business’s financial health and make smarter decisions.
At Legacy Figures Accountancy, we help small business owners like you get to grips with their numbers and build a stronger, more profitable business.
Want to take the guesswork out of your finances?
