Many business owners make the mistake of confusing basic accounting capability with true financial literacy. Being able to keep your books balanced is important, but it doesn’t give you the deeper, more dynamic understanding of your business’s financial health that you actually need as an owner. Strong financial acumen is essential if you want to make confident, well-informed decisions. Financial metrics are far more than a snapshot of past performance; they are indicators of where your business is heading and whether it is built for long-term sustainability. That’s why tracking the right numbers, accurately and consistently, really matters.
This is important stuff. The difference between SMEs that successfully scale and those that eventually struggle often comes down to how well they understand and monitor their key financial indicators.
Taking a deep dive into your business financials can feel overwhelming. How do you know which metrics really matter, or how often you should be reviewing them? At The Alternative Board, we regularly see business owners grappling with these questions. That’s why we’ve pulled together a list of the top 10 financial metrics every business owner should track this year, along with what each number tells you, why it matters, and what it reveals about the overall financial health of your business.
1. Cash Flow
Poor cash flow is the number one reason even profitable businesses close their doors. Yes, a business can be profitable on paper and still run out of cash. That’s because profit, as shown in a Profit & Loss statement, doesn’t reflect the timing of cash coming into and going out of the business. Slow-paying customers, rapid growth, or high fixed costs can all put pressure on cash flow.
Tracking cash flow gives you clarity around whether you can afford to hire new staff, invest in stock, or make improvements to systems and technology. These decisions all require reliable, ongoing cash availability.
A simple formula for cash flow is:
Business Income – Business Expenses
Cash flow really is the lifeblood of your business, so it’s something you should be reviewing regularly.
2. Gross Margin
Gross margin shows how much money your business makes on its core products or services before overheads, tax, or other operating expenses are considered. The higher your gross margin, the more you retain from each sale after covering direct costs. Low gross margins can indicate pricing issues or rising production or delivery costs.
Gross margin is also one of the first things banks, lenders and potential investors look at when assessing the underlying strength of a business.
The formula is:
Gross Margin = (Revenue – Cost of Goods Sold) / Revenue
Gross margin should be reviewed at least monthly, and ideally weekly. Doing so allows you to spot trends early and make timely decisions around pricing, suppliers or cost control.
3. Net Profit Margin
Net profit margin shows what is left once all expenses are accounted for. It highlights the difference between revenue growth and actual profitability.
The formula is:
Net Profit Margin (%) = Net Profit / Revenue × 100
It’s common to see revenue increase while net profit margin declines. This can happen when costs grow faster than sales, discounts eat into margins, or growth investments absorb cash. In simple terms, you may be selling more but keeping less.
Making decisions with a clear understanding of your net profit margin is a hallmark of strong, strategic leadership.
4. Revenue Growth Rate
Revenue growth rate measures how quickly your sales are increasing or decreasing over time, whether month-to-month, quarter-to-quarter or year-on-year.
The formula is:
Revenue Growth Rate (%) = (Current Period Revenue – Previous Period Revenue) / Previous Period Revenue × 100
This metric shows whether your business is growing, flat or declining, and gives insight into how effective your sales and marketing efforts really are. Without measuring it properly, growth becomes a guessing game — and assumptions can lead to poor decisions.
5. Customer Acquisition Cost (CAC)
Customer acquisition cost is the total cost of winning a new customer, including marketing, advertising, sales time, wages and promotions.
The formula is:
Customer Acquisition Cost = Total Sales and Marketing Costs / Number of New Customers
If it costs you nearly as much — or more — to acquire a customer than the value they bring to your business, it’s a clear signal that something needs to change. This leads directly into the next metric.
6. Customer Lifetime Value (CLV)
Customer lifetime value represents the total revenue you can expect from a customer over the entire relationship. Ideally, CLV should be significantly higher than your CAC.
The formula is:
CLV = (Average Purchase Value × Annual Purchase Frequency) × Customer Lifespan (Years) × Profit Margin
While this requires deeper analysis, the insight is powerful. Improving customer retention alone can dramatically increase CLV and overall profitability.
7. Burn Rate
Burn rate measures how quickly your business is spending cash. It’s particularly relevant for startups or businesses operating with tight cash reserves.
There are two ways to look at it:
Gross Burn Rate = Total Monthly Expenses
Net Burn Rate = Monthly Expenses – Monthly Revenue
Net burn rate gives a clearer picture of sustainability. Understanding burn rate answers a very real question: How long can we keep going at this pace? The upside is that burn rate often highlights areas where adjustments can be made quickly.
8. Break-Even Point
Your break-even point is where revenue equals costs — no profit, no loss. This metric is useful for new businesses but equally valuable for established SMEs when reviewing pricing, planning growth, or assessing new markets.
The formula is:
Break-Even Revenue = Fixed Costs / Contribution Margin Ratio
(where Contribution Margin Ratio = (Selling Price – Variable Cost) / Selling Price)
Break-even analysis helps you understand exactly how much you need to sell before your business starts generating profit.
9. Operating Expense Ratio
This ratio shows how efficiently your business operates by comparing day-to-day operating costs to revenue. It includes expenses like wages, rent, utilities, marketing, admin and software, but excludes cost of goods sold, interest and tax.
The formula is:
Operating Expense Ratio = Operating Expenses / Revenue
Monitoring this ratio is critical, especially during growth phases, as rising operating costs can quietly erode profitability. Trends over time are far more important than a single month’s result.
10. Forecast vs Actual Variance
Forecast vs actual variance measures the difference between what you expected to happen and what actually occurred. It’s a powerful indicator of planning accuracy and execution.
The formula is:
Forecast vs Actual Variance = Actual Result – Forecast Result
This metric can be applied to sales, costs, cash flow and more. It often becomes a valuable conversation starter, helping you understand what worked, what didn’t, and how to improve forecasting going forward.
Are There More Financial Metrics You Should Track?
These 10 metrics form a strong foundation, but depending on your business, you may also track measures such as EBITDA, Return on Invested Capital (ROIC), Revenue per Employee, Inventory Turnover, or Debt-to-Equity Ratio.
Financial metrics aren’t there to judge you — they exist to empower you. Greater financial visibility gives you the confidence to make better decisions and build stronger, more resilient strategies.
Success shouldn’t rely on guesswork. Knowing your numbers — and understanding what they’re really telling you — is one of the most powerful tools you have as a business owner.