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No matter what their primary motivation, an important goal of every entrepreneur is to make money. And often when someone first starts a business, most of their focus goes into tracking sales and revenue. While these metrics are crucial, there are other telling financial indicators a new business owner needs to stay on top of if they’re to truly have a grasp of the health of the company.
Neglecting to track essential metrics at the start of a new business can make it more difficult to make the right decisions and could ultimately lead to the failure of a fledgling concern. So what data do new business owners need to track to ensure they’re getting a full financial picture? Below, 13 members of Forbes Finance Council share informative metrics that every new business should track, but many don’t.
1. Monthly Burn Rate And Runway
The two most important metrics are two sides of the same coin: your monthly burn rate—how much cash you are burning through each month, after factoring in all revenues and expenses—and your runway. To determine your runway, ask yourself, “Given our estimated monthly burn, how much time do we have before we run out of cash?” – Saad Mouasher, Jordan Ahli Bank
2. Operating Cash Flow
Operating cash flow is a key metric. Cash is king in a small business. If you aren’t carefully managing your accounts receivable and accounts payable, you can quickly become insolvent. Track and forecast your operating cash flow, and leverage debt lines to help you through inevitable pinch periods. – Sean Brown, YCharts
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3. 12-Month Trailing Report
As I have reviewed income statements through the years, I have come to rely on the year-over-year 12-month trailing report to clarify where the things that impact results are happening. Adequate liquidity, consistent margins and diligent use of assets for growth will all show up in these reports. – Paul W Ewing, Prosperity Advisors
4. Performance
Performance accountability and performance measurements are key. When your staff understands how their input ties into the company vision in one-year, three-year and ten-year formats, they are more apt to be willing to put forth higher performance efforts. Understanding what the goals are, where they came from and why helps everyone row in the same direction and have a common goal. – Cynthia Hemingway, Fourlane, Inc.
5. Employee Productivity
Business owners should track employee productivity with the understanding that it is tied to employee satisfaction. Servant leadership is key: Business owners should put employees first and help them excel. Owners will know if they are succeeding at servant leadership because it will show in employee productivity. When the employees enjoy personal affirmation, the business succeeds through uncommon employee enthusiasm. – Brian Slipka, True North Equity Partners
6. Social Growth Rates
Your social growth rates are vital for tracking your market penetration. If your business’ social media follower and engagement metrics are rising steadily month over month, you know you’re doing something right. You can also use enterprise social media software to help compare your company’s growth relative to your competitors at similar stages in their development. – Tyler Gallagher, Regal Assets
7. Monthly Gross Margins After Sales
The adage, “If you can’t measure your business, you can’t manage it” is so true. Every new business should track monthly gross margins after sales. Once you track monthly revenue growth after the cost of sales in your business scorecard, look at both quarterly and annual results and see how they measure up to your forecasts. It’s all about cash flow from operations and tracking metrics to check your progress. – Peter Goldstein, Exchange Listing LLC
8. Age Of Accounts Receivable
Keep track of how old your accounts receivable are. It’s easy to look at sales and revenue and think the job is done. But if you haven’t collected the cash, you have missed the most important step. Don’t let your A/R get so aged that it becomes difficult to collect. You’ll end up doing all the hard work of selling and servicing the client for nothing. – Aaron Spool, Eventus Advisory Group, LLC
9. Customer Retention
I always tell my clients to keep close tabs on customer retention. If your clients or customers keep coming back and are happy with your service, that creates a sense of loyalty that can be invaluable as time goes on. Keeping customers happy and satisfied should be at the forefront of every business from its inception—if that’s done well, it can mean a better chance of success in the long run. – Julio Gonzalez, Engineered Tax Services Inc.
10. Revenue, Gross And Net Profit, And Net Worth
The four main key indicators of success for any business are revenue, gross profit, net profit and net worth. As long as these key indicators are increasing, we have all the checks in place for a successful business. Most business owners get excited about tracking sales and revenue, only to find out later that there’s not much left for them to take home after they pay for expenses and taxes. – Minal Babaria, KB Tax Deviser CPAs
11. Customer Satisfaction
Every company should track customer satisfaction as a key performance indicator. You can use this metric to identify where you are doing well and where you need to improve. You should be in business to serve customers. Everyone tracks revenue, but a customer satisfaction KPI takes it to a deeper level. Are your business relationships improving? Do you have a high level of trust with your customers? Are you a partner? – Dave Sackett, Visibility Corporation
12. Cost Per Customer/Transaction
How much does it cost your business per customer/transaction? To understand this, you must define who your customers are and what your interactions with those customers are. Does this cost decrease or increase as you scale up the number of customers? There is no simple equation here, as each business sector has unique variables. Understanding how revenue scales in your business sector is key. – Joseph Orseno, Tiltify
13. Cost Of Acquiring New Clients
The cost of acquiring new clients is a key factor. We’re all familiar with the “five Ps of marketing” (product, price, promotion, place and people), but one of the things business owners should be focused on is if their marketing is profitable. By tracking the cost of acquisition, you can determine whether your marketing is working in the right area. – Justin Goodbread, Heritage Investors
