Running a small business is exciting, challenging, and sometimes a little overwhelming. You’re juggling a million things—customers, employees, inventory, marketing, and more. But one thing you should never lose sight of? Your financial health.
Keeping track of your finances goes beyond checking your bank balance. In fact, there are several key financial indicators that can help you understand how your business is performing—and whether you’re headed in the right direction.
Let’s break down the most important financial metrics every small business owner should track (in plain English, of course). These numbers can give you insights, guide decision-making, and even help you avoid big problems down the road.
Why Financial Indicators Matter
Think of your business like a car. Financial indicators are your dashboard—they tell you how fast you’re going, how much fuel is left, and whether something needs fixing. Without those gauges, you’re driving blind.
By keeping an eye on specific financial metrics, you’ll be able to:
- Spot trouble early—before it becomes a big issue
- Make smarter decisions about spending, hiring, and investing
- Plan for the future with more accuracy
- Prove your financial health to lenders or investors
Now, let’s dive into the top financial indicators you should start tracking today.
1. Cash Flow: The Lifeblood of Your Business
If there’s only one metric you track, this should be it. Cash flow is the money coming in and going out of your business. You need to make sure more is coming in than going out—or you might run into serious problems, even if your profits look good on paper.
Think of cash flow like oxygen for your business. Without it, you can’t breathe.
How to track it:
- Use your accounting software to generate a monthly cash flow statement
- Make note of patterns—like seasonal dips or spikes
- Plan ahead for slow months
2. Net Profit Margin: Are You Actually Making Money?
Revenue is great, but that’s just your top line. What really matters is what’s left after all your expenses. That’s your net profit.
Your net profit margin shows what percentage of your revenue is actual profit. It tells you how efficiently your business turns sales into earnings.
Let’s say you make $100,000 in revenue, and your net profit is $10,000. That gives you a 10% net profit margin.
Why this matters:
High revenue with a low net profit margin could mean you’re overspending somewhere. This metric gives you the reality check every business owner needs now and then.
3. Accounts Receivable: Are You Getting Paid?
Just because you send an invoice doesn’t mean you’ve been paid. Accounts receivable is money owed to your business by customers. Keeping a close eye on this helps you avoid cash flow issues.
If customers are taking weeks—or months—to pay, that’s cash you can’t use to run your business.
Tips to stay on top of it:
- Set clear payment terms (like net 30 or net 15)
- Use payment reminders or automated invoicing tools
- Follow up consistently and don’t be afraid to chase late payments
4. Operating Cash Flow: What’s Your Business Really Generating?
This one’s a bit more specific than general cash flow. Operating cash flow measures the money your business generates from its day-to-day operations—no loans, no investments, just core business activity.
It gives you a clearer picture of whether your business model is sustainable.
Real-life example:
Imagine you sell handmade jewelry. The operating cash flow would show if your sales are strong enough to cover materials, shipping, and your time—without relying on outside funding.
5. Accounts Payable: Are You Paying Your Bills?
Just as others owe you money, you owe others too. Accounts payable includes the money your business owes to vendors, suppliers, or contractors.
You want to pay on time, but you also don’t want to pay too quickly and run short on cash. Balancing accounts payable is all about smart cash management.
Pro tip:
Many vendors offer net terms, like “Net 30,” which means you have 30 days to pay. Use these strategically to hold onto cash longer without hurting relationships.
6. Working Capital: Can You Cover Short-Term Bills?
Here’s an easy formula:
Working Capital = Current Assets – Current Liabilities
It tells you if you have enough short-term assets (like cash, inventory, or accounts receivable) to pay off short-term liabilities (like accounts payable or other debts due soon).
If you have $20,000 in assets and $15,000 in liabilities, your working capital is $5,000. Positive working capital = peace of mind.
7. Burn Rate: How Fast Are You Spending?
This one’s especially important for startups and new businesses. Burn rate refers to how quickly you’re using up your cash reserves.
If you’re not yet profitable, your burn rate tells you how much time you have before you run out of money. It’s like watching your fuel gauge when you’re on a road trip—it tells you how far you can go.
How to calculate it:
Take your monthly expenses and subtract your monthly revenue. That’s how much cash you’re “burning” each month.
8. Revenue Growth: Are Sales Improving?
Most business owners get excited when sales go up—and for good reason! Revenue growth shows whether your business is expanding or stalling.
Tracking revenue growth over time helps you spot trends, evaluate marketing effectiveness, and forecast future earnings.
Remember: A healthy business grows steadily—sudden growth can sometimes be as dangerous as no growth if you aren’t prepared.
Start Simple. Start Now.
We get it—tracking all these numbers might feel a little overwhelming, especially if you’re not a “numbers” person. But the good news is, you don’t have to track everything at once.
Pick two or three indicators to start with. Get comfortable with them. Then layer in more as you go. Over time, you’ll build a financial dashboard that helps you steer your business with confidence.
Final Thoughts
Being a small business owner means wearing many hats—but the financial hat is one you can’t afford to ignore. The more you understand your numbers, the better decisions you’ll make.
So, the next time you’re wondering how your business is doing, don’t just guess. Look at the numbers. They’ll tell you everything you need to know.
Tip: Set a recurring calendar reminder—say, the first Monday of each month—to review these financial indicators.
Trust us, your future self will thank you.
