UHY Ross Brooke Chartered Accountants

5 Key Financial Metrics Every Ambitious Business Owner Should Track

ways to grow your business

As an ambitious business owner, you should already understand that the success of your business relies heavily on making informed financial decisions. To effectively manage your company’s finances and drive growth, it is essential to track and analyse the correct key financial metrics. These metrics provide valuable insights into the health and performance of your business, allowing you to identify areas of improvement and make strategic decisions.

By Chris Davies

We have identified five key financial metrics that every ambitious business owner should track.

Revenue Growth Rate:

The revenue growth rate measures the percentage increase in your business’s total revenue over a specific period. Tracking revenue growth enables you to evaluate the effectiveness of your sales and marketing efforts, as well as the overall demand for your products or services. A consistently high revenue growth rate indicates a healthy and expanding business, while a decline may signal the need for adjustments in your strategies.

But beware it’s not all about increasing turnover for the sake of it. Anyone can sell £5 notes for a £1, so make sure that the profits are there too (see below).

To calculate the revenue growth rate, subtract the previous period’s revenue from the current period’s revenue, divide it by the previous period’s revenue, and multiply by 100.

Gross Profit Margin:

The gross profit margin is a crucial metric that measures the profitability of your core operations. It represents the percentage of revenue remaining after deducting the direct costs associated with producing or delivering your products or services. A higher gross profit margin indicates that you are effectively managing your costs and generating a healthy profit from each sale.

To calculate the gross profit margin, subtract the cost of goods sold (COGS) from your total revenue and divide it by your total revenue, then multiply by 100.

Cash Flow:

Cash flow is the lifeblood of any business. Tracking your cash flow provides insights into the inflow and outflow of money within your business, helping you assess your ability to cover expenses, invest in growth opportunities, and meet financial obligations. A positive cash flow indicates that your business is generating more cash than it is spending, ensuring stability and flexibility in your operations.

Monitor your cash flow by preparing regular cash flow statements, which include information on operating, investing, and financing activities. All too often businesses fail, not because they are not profitable but because they simply run out of cash as they expand. By analysing these statements, you can identify cash flow patterns, potential cash gaps, and take proactive measures to manage your cash flow effectively.

Customer Acquisition Cost (CAC):

The customer acquisition cost is the average cost incurred to acquire a new customer. It includes all marketing and sales expenses divided by the number of customers acquired within a specific period. Tracking your CAC helps you evaluate the efficiency of your customer acquisition strategies and determine the return on investment (ROI) for your marketing efforts.

To calculate the CAC, add up all your marketing and sales expenses during a given period and divide it by the number of new customers acquired in the same period.

Return on Investment (ROI):

Return on Investment (ROI) measures the profitability of an investment relative to its cost. It helps you determine how effectively you are utilising your resources to generate returns. By tracking ROI for different projects, campaigns, or investments, you can prioritise initiatives that yield the highest returns and make data-driven decisions about resource allocation.

To calculate ROI, subtract the cost of investment from the net profit generated by the investment and divide it by the cost of investment. Multiply the result by 100 to express it as a percentage.

For more business advice or help with any of the above KPIs, please get in touch

As well as being Chartered accountants, UHY Ross Brooke are skilled business advisors and we’d love to share this useful booklet with you.

Just fill in the form below and we’ll send you a copy.

And best of luck with your business!

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