You probably already keep an eye on your revenue and your bank balance. But do those numbers actually tell you how healthy your business is? Not really.
Just because money is coming in doesn’t mean your business is profitable. And just because you have cash in the bank today doesn’t mean you won’t run into trouble next month. That’s why tracking the right financial KPIs can help you make smarter decisions, spot problems before they happen, and grow your business without constantly worrying about cash flow.
Here are five financial numbers that every business owner should track—what they mean, why they matter, and what to do if something looks off.
1. Revenue Growth Rate – Are You Actually Growing?
Your revenue might look good today, but the real question is: Is it growing? And if so, how fast?
Revenue growth rate shows how much your income has increased (or decreased) over time. Tracking this month-over-month or year-over-year helps you spot trends. Are things moving in the right direction, or are you just treading water?
Example:
Let’s say you’re running a marketing agency. Last year, your revenue was $500,000. This year, it’s $600,000. That’s a 20% growth rate—great! But what if the bulk of that growth came from one big client? If that client leaves, you could be in trouble.
What to Do:
- If your revenue is growing steadily, double down on what’s working. Maybe a certain service is taking off—can you expand it? Are your existing clients spending more? If so, keep nurturing them.
- If growth is slowing down, dig deeper. Are you losing clients faster than you’re gaining them? Are you too reliant on one-time projects? Consider building recurring revenue through retainers or ongoing services.
2. Operating Profit Margin – Are You Keeping Enough of What You Earn?
Making more money is great, but if your expenses are eating up everything you bring in, you’re not really getting ahead.
Your operating profit margin tells you what percentage of your revenue is actually left after covering the day-to-day costs of running your business—things like salaries, rent, software, and office expenses.
Example:
You run a consulting firm and bring in $200,000 a year in revenue. After covering payroll, office rent, and software, you’re left with $30,000 in profit. That’s an operating profit margin of 15%.
Is that good? Well, it depends. If competitors in your industry have margins closer to 25%, you might be spending too much or underpricing your services.
What to Do:
- If your margin is solid, keep it that way by watching overhead costs, making sure you’re charging enough, and improving efficiency.
- If your margin is shrinking, look at where your money is going. Are you spending too much on software or office space? Are your projects taking longer than expected, lowering your profitability? Small pricing changes or cutting unnecessary expenses can boost your margins without more work.
3. Current Ratio – Can You Pay Your Bills Next Month?
A lot of businesses look profitable on paper but struggle with cash flow. If clients take months to pay, you might not have the money you need to cover payroll, rent, and other expenses—even if revenue is strong.
The current ratio tells you whether your business can meet its short-term financial obligations. A ratio above 1.0 means you have enough assets (cash, accounts receivable) to cover upcoming bills. A ratio below 1.0 means you might have trouble paying what’s due.
Example:
Let’s say you have $50,000 in cash and invoices due soon, but you owe $75,000 in expenses over the next few months. That’s a current ratio of 0.67—a sign that cash flow is tight and you need to speed up collections or cut back on spending.
What to Do:
- If your ratio is healthy (above 1.0), keep it that way by monitoring spending and building a cash reserve for slow months.
- If your ratio is low, speed up client payments. Send invoices as soon as the work is done, set up automated reminders, and consider requiring deposits upfront.
4. Accounts Receivable Turnover – How Fast Are You Getting Paid?
If you’re constantly waiting on clients to pay, you’re basically giving them an interest-free loan.
Accounts receivable turnover measures how quickly you’re collecting payments. If it’s high, clients are paying on time. If it’s low, you’re waiting too long, which can choke your cash flow.
Example:
You send out invoices totaling $100,000 per month, but at any given time, clients still owe you $80,000. That means your turnover rate is low, and money that should be in your bank account is stuck in limbo.
What to Do:
- If clients pay late, follow up more aggressively. Send invoices immediately after work is done. Set up payment reminders before the due date, not after.
- Make it easier to pay—accept credit cards, ACH, or online payments instead of waiting for checks.
- Tighten payment terms—instead of Net 30, ask for Net 15 or require partial payment upfront for large projects.
5. Cash Flow Forecast – Are You Prepared for What’s Next?
Checking your bank account isn’t the same as managing cash flow.
A cash flow forecast helps you see problems before they happen by estimating how much cash will come in and go out over the next few months.
Example:
Let’s say it’s August, and your cash flow looks fine. But when you project your numbers forward, you realize that a big tax payment is due in October, plus you need to cover payroll and rent. Suddenly, you’re looking at a shortfall.
If you hadn’t checked ahead, you might have spent too freely, assuming the cash would be there.
What to Do:
- Regularly update a cash flow forecast so you’re not caught off guard.
- Plan ahead for large expenses like taxes or new hires.
- If you see a shortfall coming, cut non-essential expenses or push to collect payments faster.
So, Where Should You Track Your KPIs?
Setting KPIs is one thing—tracking them consistently is another. The most important part? Making sure they live somewhere you’ll actually check them.
There’s no one-size-fits-all approach, but based on what works best for agencies and service-based businesses, here’s how we recommend keeping track of your financial KPIs:
1. Accounting Software – The Source of Truth
Your accounting software (QuickBooks Online, Xero, FreshBooks) is where all your financial transactions live, so it’s the best place to start. These tools automatically track revenue, expenses, and profitability—but you have to set up reports correctly to get the insights you need.
💡 What to Track Here:
- Revenue growth rate (compare month-over-month or year-over-year)
- Operating profit margin (profitability after covering expenses)
- Current ratio (cash flow health)
💡 Our Tip: You can set up custom dashboards in QuickBooks or Xero to see trends at a glance instead of waiting for financial reports at the end of the month.
2. A Cash Flow Forecasting Tool – Staying Ahead of Surprises
A cash flow forecasting tool helps you predict what’s coming next, rather than just looking at what’s already happened. If cash flow is a concern, this is a must.
✅ Tools to Consider:
- Float (syncs with QuickBooks/Xero for real-time forecasting)
- Helm (great for agencies and service businesses with variable revenue)
- Excel or Google Sheets (a simple manual option if you’re not ready for software)
3. A KPI Dashboard – Everything in One Place
If you’re serious about tracking trends instead of just checking numbers once a month, a KPI dashboard is a game-changer. Instead of logging into multiple systems, you get a snapshot of your business’s financial health in one place.
✅ Tools to Consider:
- LivePlan (for financial planning & business insights)
- Fathom (great for visualizing financial KPIs)
- Google Sheets / Excel (custom-built if you prefer full control)
💡 What to Track Here:
- Revenue vs. profit trends
- Accounts receivable turnover (are clients paying on time?)
- Utilization rates (for service-based businesses—are you billing enough hours?)
💡 Our Tip: If you’re using Google Sheets or Excel, update KPIs at least once a month and set up automatic graphs to see trends over time.
Final Thoughts
Tracking financial KPIs isn’t about checking numbers for the sake of it—it’s about understanding your business better so you can make smarter decisions. The most important thing is not just tracking these KPIs, but knowing how to act on them.
At Affinity Accounting, we help business owners go beyond the numbers. Instead of just looking at reports, we focus on what they mean and what to do next. If you’re looking for a clearer financial picture and a plan to improve profitability and cash flow, we’re here to help.
Our recommendation? Start tracking these KPIs consistently, understand the trends, and take action early. If you’re not sure where to start, let’s talk.
