Top 10 Financial Metrics Every CEO or Entrepreneur Needs to Know
As a CEO or entrepreneur, you need to know the ins and outs of your finances. The best way to do that is to track the right financial metrics.
When you track the right metrics you have all of the information you need to drive success, growth, and reach your business goals.
Here are the top 10 financial metrics every CEO or Entrepreneur needs to know:
1. Cash Flow
Cash flow is one of, if not the most important metric for any business to track. It is a measure of how, and how much money is moving in and out of your business. Without a strong cash flow, your business could suffer.
A strong cash flow means your business has more money flowing into it than it has going out, so you’ll always want to be improving your cash flow.
You can improve your cash flow by:
- Tracking everything and utilizing your forecasts
- Keeping a close watch on your accounts receivable
- Updating vendor and partner contracts
- Running a pricing analysis
- Working with an experienced accounting partner
2. Gross and Net Profit Margin
Gross profit margin is a great way to measure the profitability of your core product or service. It measures the profit associated with directly producing revenue.
Net profit margin is a great way to measure your overall business growth. It tells you how much profit you make per dollar of revenue. High profit margins are the goal.
When your profit margin is increasing, it usually means your business is trending in the right direction. If it is decreasing, that’s a sign to make adjustments to your current practices.
You can improve your business’s profit margin by:
- Increasing sales
- Cutting costs
- Or both of the above
3. Customer Acquisition Cost (CAC)
Customer acquisition cost is the average amount of money you spend per new customer.
Tracking this metric gives you a good idea of how effective your marketing strategy is. Your goal should be to have a low CAC. This would indicate that you spend a small amount to convert potential buyers into customers.
You can improve your CAC by revamping your marketing strategy to:
- Be more effective
- Cost less
- Target your ideal customer
4. Growth Rate
It’s likely your goals are centered around growing your business. Using growth rate, you can track your business growth to see if you are hitting or missing your goals.
One of the benefits of tracking your growth rate is that you can do it with nearly any number. You can measure the growth of profits over “X” amount of time, the growth of specific products over “X” amount of time, or even the growth of a specific division over “X” amount of time.
With these numbers, you can easily track progress and set realistic, growth-centered goals.
5. Burn Rate
Burn rate measures the amount of time a business has left before it runs out of money. In most cases, the longer the burn rate, the better.
Tracking your burn rate not only gives you essential insight into how long your business can survive off its current cash but also indicates when a business is spending too much money. If your burn rate is short, it’s time to make a change.
You can lengthen your burn rate time by:
- Cutting spending
- Getting additional funding
6. Accounts Receivable Turnover
Accounts receivable turnover is a measure of how long it takes customers to pay their bills. Because collecting your accounts receivable is how you get your revenue, it’s essential you do it in a timely manner. If not, your cash flow will suffer.
Ideally, you’d like your customers to pay their invoices the day they are sent, however, everyone in business knows, that’s not always the case. The next best thing is to collect them as soon as possible. The shorter amount of time your invoices go unpaid, the better.
To shorten your accounts receivable aging time, try:
- Including a deadline for customers to pay in the invoice
- Offer a small incentive for paying early
7. Accounts Payable Turnover
To piggyback on accounts receivable turnover is accounts payable turnover. This is the amount of time it takes your business to pay its bills. Again, the quicker you make your payments, the better.
Considering your bills and payments are factored into your budget, it’s important you pay them during your predetermined time. Not only does this help for internal reasons but it also gives you a leg-up should you need a loan or go for a credit check.
8. Budget vs. Actuals
A budget vs. actuals report is chalked full of important information for your business. It compares your actual spending/expenses to your planned spending/expenses. The goal should be to keep your actuals as close to your budget as possible, if you don’t your cash flow will suffer and it’s likely your burn rate will decrease.
When you find discrepancies in your actuals to your budget, you can pinpoint where the variance is occurring and make adjustments to get your spending back on track.
9. Customer Satisfaction
Customer satisfaction is a driving force for your business. Whether you focus on it or not, it determines your success.
There are many ways to gauge customer satisfaction, you could:
- Track reviews
- Send surveys
- Talk one-on-one with customers
However you decide to measure customer satisfaction, make sure you keep an open mind. Their insight is important and their opinions drive sales.
10. Employee Satisfaction
Measuring employee satisfaction may not sound like a key financial metric, however, like your customers, they determine your success.
- Heightened productivity
- Increased confidence
- Better relationships with customers
Each of these benefits affects sales, which as you know, drives profits. To improve employee satisfaction, build a work culture that shows you care.
Track the Right Metrics with the Help of an Accountant
The 10 metrics above are a great place to start when measuring the financial health of your business. They provide essential insight into numbers that drive growth and success.
However, this is not an all-inclusive list, meaning metrics that are important to your business specifically, may not be included.
To make sure you are tracking the right metrics for your business, recruit a trusted accountant, like New Economy. We will help you select metrics you can use to grow your business. Contact us today to learn more!