12 essential financial metrics for small businesses

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Startups and small businesses are especially dependent on strong financial reports, which they use to measure progress, guide operational decisions, and set goals. But not all information is equal, and small businesses need to know which metrics the best data will be able to rely on.

Below, 12 experts from Forbes Financial Council share the financial metrics they feel are most important for small businesses to create and review to ensure long-term success.

Photos courtesy of individual members.

1. Cash flow

The most critical metric is cash flow, not only reporting but also analysis. Every entrepreneur believes that money equals the “life” of their startup. But many forget that lack of cash equals death. There are many tools for controlling finances in general and cash flow in particular. The key metrics to watch are cash consumption (measured monthly) and track (how long you can operate). – Anderson Thees, Redpoint Events

2. Profit targets and profit per customer

We tell our clients, “There is no guarantee of financial success, but a critical part is developing goals, budgets and targets as metrics. Be deliberate and set the amount of profit you want to create. Next, calculate your profit per customer. Finally, quantify the number of clients needed to meet your long and short term goals. Very few companies quantify these basic but extremely important numbers. – Paul Hood, Hood & Associates, CPA, PC

3. Operational cash cycle

According to a US Bank study, 82% of businesses fail because of poor cash flow management. When a growth opportunity presents itself, organizations need to understand their operating cash cycle (the time it takes for cash to become available after the capital investment) and their maximum self-funded growth rate to paint an accurate picture of their ability to take that leap. – Shawn Sweeney, Spinnaker Advisory Group

4. Profit and loss

As a CPA, I request a quarterly profit and loss report from a business client for tax estimates. Failure to have this report is detrimental to the internal review of the business, the needs of banks, and the needs of tax reporting. While it doesn’t track the company’s cash flow, the P&L shows your results from a stranger’s perspective. Bonus: create a reconciled balance sheet to see if you’ve caught it all and if you have any assets! – Jackie Meyer, Meyer Tax, Coach CPA Concierge

5. Average cost of acquiring customers

Acquiring profitable customers is an essential part of any business. Business owners should regularly work to understand the average cost of acquiring a certain type of customer versus that customer’s lifetime value. Then work to lower customer acquisition costs by improving marketing while determining ways to retain or sell existing customers to increase customer value. – David Brim, Brilliant impact

6. Fixed burn rate

Companies often don’t make sure they can reduce their burn rate. I would even go so far as to say that it is better to pay a little more for things than to be stuck in long term contracts. Keep an eye on growth and success, but keep your fixed burn rate in check because you never know when to cut costs. – JD Morris, Red Hook Capital

7. Regulatory requirements for your industry

Startups and small businesses should never forget about financial regulatory requirements. Many industries require licenses and financial obligations such as minimum capital, quarterly submissions, and financial ratio requirements. Follow them to avoid heavy financial penalties for non-compliance. – Frans Wiwanto, Flywire

8. Unsubscribe rate

It’s no secret that keeping customers is more profitable than finding new ones, especially when measured in years. The churn rate is a measure of how “sticky” your product or service is and how long it has been used. Without knowing and working to reduce the churn rate, it will be impossible to measure the true ROI and the accounting rate of return. Knowing the data and the reasons why your business has the churn rate is the key to long term success. – Jordan Friedman, Zodaka

9. Budget compared to actual

I’m sure most would respond to cash flow, but the reality is people don’t watch their cash flow very much. It is difficult for most owners or managers to understand this relationship. The budget versus the real thing is something that will feel more tangible. Everyone likes to know that they are making progress towards a goal or areas where they need to devote their attention, so that the budget versus the actual will receive better attention. – Marjorie Adams, Fourlane

10. Projected loss of profit compared to reality

I believe that every business should create a projected profit loss every year. This allows you to manage your budgets in each individual expense category. Small businesses should then compare actual spending with forecast and see if there are any red flags. It’s a solid way to ensure that expectations match reality and that there are no red flags. – Jonathan Moisan, Advertise purple

11. Financial ratios

Small business owners should regularly assess their financial ratios, including their efficiency ratio (cost of earning a dollar in income), their liquidity ratio (how much cash is available to cover your debts) and their profitability ratios ( how much your business earns in relation to its sales). Together, these ratios tell a very telling story about the overall financial health of your business. – Tyler Gallagher, Royal assets

12. Employee productivity

Creating value for employees is essential. You know what people cost – are they generating enough value to justify these amounts? Too often, employee productivity is not monitored. Owners look at the big picture and don’t go down to the employee level to see if people are generating positive feedback. Employees tend to be the most valuable and expensive asset, so see if they’re worth it. – Chris Tierney, Moore Colson CPA and advisors



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