Let’s Talk: Must-know metrics for business owners

Your business’s financial health is its lifeline. To navigate the complexities of entrepreneurship, understanding key financial metrics is crucial.

In this week’s edition of Let’s Talk, our experts will break down the essential metrics every entrepreneur should be tracking. We’ll delve into their significance and provide practical guidance on how to interpret them effectively

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Emma Fawcett, Executive General Manager, SME at MYOB

“Understanding financial metrics is crucial for the sustained success of small businesses. At MYOB, we’ve seen that the most successful businesses are those that keep a close eye on key financial indicators.

“First, cash flow is the lifeblood of your business. It’s not just about profits, but when those profits arrive. Late payments can cripple a small business, so always monitor your cash flow to ensure you have the funds to meet your obligations.

“Secondly, keep an eye on your gross profit margin. This metric shows the difference between your sales and the cost of goods sold, revealing how efficiently your business is operating. A declining margin may indicate rising costs or pricing issues that need immediate attention.

“Thirdly, track your operating expenses. High overheads can eat into profits quickly, so regular reviews of your expenses are essential. Look for opportunities to extract maximum value from your costs without compromising the quality of your product or service.

“Lastly, don’t forget about your accounts receivable turnover. This measures how quickly you collect payments. A low turnover could mean your credit policies need tightening or that you need to improve your follow-up processes.

“With all of these metrics use a robust platform that will give you real time insights, so there are no surprises and you can make confident, data based decisions to help your business thrive.”

Joshua McNicol, Director of Growth at Zeller

“In Australia, less than 20% of transactions are made with cash, making cashless payments the dominant consumer choice. However, these convenient payment methods come with costs beyond just renting an EFTPOS machine, and managing the costs associated with payment acceptance is now one of the most important financial metrics for businesses to keep track today.

“Every time a customer taps their card or device, your business incurs a transaction fee. With the rapid increase in cashless payments, if not monitored these transaction fees can quickly add up, costing your business thousands of dollars annually. Successful monitoring is achieved by regularly reviewing merchant statements to ensure you understand what you’re paying, and how those fees are calculated. Ensure you’re constantly reviewing the market for EFTPOS solutions that offer transparent pricing, ideally with a low, flat fee for all card types (including premium cards like American Express). Finally, consider providers who enable you to purchase your EFTPOS terminal outright (instead of renting it, paying expensive recurring monthly fees)  to reduce long-term costs.”

Elise Balsillie, Head of Thryv Australia

“Financial metrics are critical markers for small business owners. In measuring business performance, these metrics shine a light on areas strength and areas in need of attention. Most importantly, they help business owners make informed, strategic decisions.

“With the ever-changing business landscape, tracking financial metrics and key performance indicators (KPIs) help owners build a business for the long-term.

“Here are my top three reasons why financial metrics matter:

• Financial health
  Metrics like net profit margin, debt ratio and operating cash flow provide insight into business health, including liquidity and operational efficiency. Regular monitoring helps ensure any financial issues are detected before they become serious, which will safeguard the financial stability of a business.
• Business efficiency
  KPIs (key performance indicators that measure performance against goals) can monitor how efficient a team is in achieving results. For example, if measuring time spent on resolving customer issues reveals that too much time is needed, an owner can evaluate if new technology or increased staff training can minimise the time to resolution.
• Future-proofing business growth
  Customers are the key to business success. Understanding the cost of acquiring a new customer informs a business’ sales and marketing strategy and helps determine the cost of future growth. Regular monitoring helps a business create an achievable plan for the long-term.”

Steven Nicholson, Director at GearChange Business Advisory

“My advice to all business owners is to “know your numbers”. This means the financial and non-financial metrics that are critical for business success. These are the key ones relevant across all business types:

1. Revenue (value and volume) – Monitor monthly, weekly or daily, against targets set. Track against prior periods and look for trends.
2. Gross profit margin – Profit as a percentage of your revenue. Highlights changing direct costs compared to how much you sell for.
3. Overheads spend – Spend on all other costs monthly. How much gross profit you need to make before you make any profit.
4. Net profit margin – The profit the business has made as a percentage of revenue.
5. Net cash flow – How much cash your business is generating – the most important metric for all businesses.
6. Debtor days – How many days of sales you maintain as debtors, ideally not more than the credit period you offer.

“Non-financial metrics are equally important. Monitor customer satisfaction, returns/claims, delivery times, customer acquisition costs, as relevant to your industry.

“Outsource to the experts if you don’t have the time or expertise to do this yourself. Knowing your numbers allows you to make better business decisions.”

Lisl Pietersz, Solopreneur, Communications and Transition Coach, University of Sydney Business School, AGSM at University of NSW

“Keeping a close eye on your small business’s financial metrics is as essential as looking after your own health and wellness. Just like staying well leads to a more balanced life, regularly monitoring your financials ensures your venture stays strong and grows steadily. Here are key financial metrics to track:

• Understand your profit margins, both gross and net: These figures are crucial for assessing the profitability of your products and services.
• Monitor ROI at a grassroots level: Make sure you are measuring the ROI for each product or service, as well as your business overall. Consider for example, if it is time to adapt or retire a specific product or offering.
• Monitor your break-even point: This is key to help you understand the minimum sales you need to cover your costs, including expenses.

“Tracking these metrics will tell the story of your business health and flag any pain points. In turn, this enables you to make informed decisions about the future, especially if and when you might need to pivot your financial plan. Don’t forget to consult an accountant if you need deeper financial insights.”

Amar Rizvi, Chief Strategy Officer at iMile Delivery

“For any SMB, effective cash flow management is crucial. By ensuring that cash inflows consistently exceed outflows, businesses can maintain smooth operations and avoid liquidity issues. From the early stages of our growth, we prioritized positive unit economics and profitability over mere expansion. This approach enabled us to build a robust and resilient business, even as others faced challenges.

“In addition, owners and managers should closely monitor key financial metrics to ensure their company’s sustainability and growth. For last mile delivery businesses, metrics such as delivery success rates, delivery time, and cost per delivery provide essential insights into the overall effectiveness of your logistics strategy.

“At iMile, we leverage advanced technologies like automated route optimization and sophisticated data analytics to boost operational efficiency and enhance delivery speed. These innovations have a direct impact on our critical metrics, which are fundamental for evaluating logistical efficiency. By continuously improving these metrics, we strengthen our relationships with major eCommerce clients, leading to greater customer satisfaction and bolstering our financial performance and competitive position.”

Trena Blair, CEO of FD Global Connections

“Monitoring financial metrics is crucial for the success and sustainability of any business. By keeping a close eye on key financial indicators, business owners can make informed decisions and identify areas for improvement. Some of the most important financial metrics that every business owner should monitor include revenue, expenses, cash flow, profit margins, and return on investment (ROI).

“Tracking revenue is essential for assessing growth and profitability, while monitoring expenses is important for controlling costs and maximizing profits. Keeping track of cash flow is vital for ensuring that the business has enough liquidity to meet its financial obligations. Calculating profit margins helps business owners understand how efficiently they are operating and identify areas for improvement. Additionally, monitoring ROI allows business owners to evaluate the effectiveness of their investments and make strategic decisions about resource allocation.

“Overall, regularly monitoring these financial metrics can help business owners make informed decisions, identify potential issues, and drive long-term success. By staying on top of these key indicators, business owners can better position their companies for growth and sustainability.”

Rolf Howard, Managing Partner at Owen Hodge Lawyers

“When it comes to which financial metrics to measure in a business, those that relate to a business’ risk profile unfortunately often fall by the wayside.

“Current ratio, quick ratio and debt-to-equity ratio explore a business’ ability to meet payment obligations and the scale of a company’s debt. These metrics are a great way to quickly assess the company’s risk profile in relation to liquidity and solvency. Failing to measure these can quickly put your business at risk.

“Current Ratio compares current assets (cash, inventory, accounts receivable etc) to current liabilities (accounts payable, debt, tax owed etc), indicating the company’s ability to meet its short-term obligations.

“Quick Ratio (also called the acid test ratio) is a more stringent measure of liquidity than Current Ratio. It excludes inventory from current assets, therefore highlighting the company’s ability to meet immediate obligations such as bill and loan payments within the next three months.

“Debt-to-Equity Ratio compares the company’s debt to its equity, revealing its financial leverage, risk profile and ability to meet long-term financial obligations. This ratio calculates how much debt you have for every dollar in equity. A good Debt-to-Equity Ratio is around 1-1.5 and no more than 2.”

Leonie Martin, Director of HelloLedger

“While well-monitored financial metrics drive business success, neglecting these indicators may lead to instability. Here are crucial metrics for maintaining financial health:

• Cash Flow: Forecast and monitor through monthly, quarterly, and annual estimates. Track income and expenses diligently.
• Profit Margins: Regularly calculate gross and net profit margins to gauge operational efficiency and pricing strategy.
• Customer Acquisition Cost (CAC): Monitor expenses for acquiring new customers. A rising CAC may signal need for more efficient marketing.
• Accounts Receivable Turnover: Actively manage receivables. Consider early payment discounts or stricter terms to improve cash flow.
• Inventory Turnover: Link inventory to demand to avoid tying up cash in excess stock.
• Debt-to-Equity Ratio: Maintain balance to ensure stability while leveraging growth opportunities.

“Implementation:

1. Set up a system to track these metrics weekly or monthly.
2. Use accounting software to automate data collection and analysis.
3. Review regularly and adjust strategies accordingly.

“Consistent monitoring enables informed decisions, anticipates challenges, and drives sustainable growth.”

Philip Keogan, Chief Commercial Officer at Wattwatchers

“In the face of rising energy prices, managing energy costs has become a crucial financial priority for businesses, capturing the attention of executives and boards alike. Energy expenses are now a significant factor, demanding strategic measures to protect profitability.

“Effectively using energy data is essential for navigating these challenges. Real-time reporting and trend analysis allow businesses to make informed decisions, optimising energy usage and uncovering opportunities for cost reduction, all of which directly impact financial performance.

“Energy data is integral across the business lifecycle. From establishing a baseline energy profile to designing and implementing cost-saving strategies, and verifying their financial impact, these insights ensure that energy initiatives deliver a maximum return on investment.

“Additionally, tracking energy performance is essential for meeting carbon reduction commitments and enhancing sustainability rankings—factors that increasingly influence customer and investor confidence, shaping a business’s reputation.

“Looking ahead, energy data will drive the adoption of distributed energy solutions, such as solar power and EV charging. These strategies are key to achieving long-term financial resilience as the energy landscape continues to evolve.”

Kathryn Williams, Financial soul mate®, KMint

“It can be rather sexy and feels good when you know your numbers.

“Four key financial metrics business owners must monitor, are:

• Profit and Loss Statement – the key measure of corporate success.
  • Gross profit margin (GPM) – measures how effective you are at managing production. It is here that you determine the strength of your value-pricing and mark-up policies.
  • Net profit margin (NPM) – the ultimate metric, showing the percentage of each sales dollar the company manages to hang on to after production and operating expenses. The higher the margin, the more profitable the business.
• Balance Sheet Report – a snapshot of business value at a point in time.
  • Liquidity – sometimes referred to as Working Capital (WC). The higher the WC ratio, the better. If negative, then the business doesn’t have sufficient funds to cover its debts and may be trading insolvently. Quick Ratio (QR) measures short term (< 12months) liquidity, indicating how much is left after paying current obligations.
  • Valuation – Earnings Per Share (EPS) is quoted when investors are considering company performance and share value. Steady EPS growth indicates positive progress.

“Get to know these metrics to confidently make the right decisions.”

Konstantin Klyagin, Founder of Redwerk and QAwerk

“Specific financial metrics may vary depending on the industry, but some are universal. All businesses should track net profit margin and cash flow. Net profit margin measures a company’s overall profitability, showing the percentage of revenue remaining after deducting all expenses, taxes, and costs. Reviewing cash flow statements helps ensure the business stays operational and meets its financial obligations.

“For service-based businesses like Redwerk, profitability hinges on resource utilization. This metric measures the percentage of time developers, QA engineers, or other specialists spend on billable projects.

“For instance, if an employee works 35 billable hours out of 40 total, their utilization is 88% (35/40×100). High utilization is key to maximizing revenue, whereas low utilization can lead to inefficiencies and financial losses.

“To predict future utilization, use this formula: scheduled hours / total availability (x100). This involves considering employee availability, time off, and current project schedules. Time tracking and project management tools are essential for gathering this data.

“Calculating project margins protects business owners from unprofitable projects. This metric reveals the most profitable projects and clients and highlights areas for cost improvement.

“Customer metrics, such as client retention rate, are also crucial. Retaining clients is often more cost-effective than acquiring new ones. High retention rates indicate strong client relationships, leading to repeat business, upselling opportunities, and referrals. This also helps businesses predict workload and allocate resources more effectively.”

Lachlan Grant, Founder & CEO at Vital Addition

“When it comes to financial metrics, I always emphasise Unit Economics—what’s behind the Profit and Loss and Balance Sheet. These deeper metrics provide a more meaningful snapshot of a business’s health. Every business is unique, but certain key metrics should always be monitored closely:

• Customer data: How many customers am I serving each month? What’s their average spend (Average Order Value/Contract Value)? Am I retaining them, or are they churning?
• Revenue, Margin, and Marketing: What’s the average price per unit I’m selling? What’s the gross margin per unit? Crucially, how much am I spending to acquire each customer, otherwise known as Customer Acquisition Cost?

“These figures will help determine the Lifetime Value of a customer—an essential measure of your business economics. The central question is: for every dollar I’m spending to acquire revenue, what is the profit I’m getting back at a unit level? Simply seeing profit on your P+L or cash in the bank doesn’t equate to long-term success. It’s about making smart investment decisions for each dollar spent, ensuring your business is set up for sustainable growth.”

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