Top Best Financial Metrics any business owner should track

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 Which are the Top best financial metrics any business owner should track?

This question is in due time should ask every entrepreneur to be sure that their business moves in the right direction and has a long prosperous future. Firstly, let’s define the financial metrics and then name some of the most vital ones in our view.  

What are FINANCIAL METRICS?

Undoubtedly, it is essential to use financial metrics to build financial models to measure and forecast a company’s future growth. Additionally, portfolio managers, for instance, analyze them to allocate investments among various projects. Suppose we discuss financial metrics from the project management perspective. In that case, they are vital to follow the progress, performance, some essential statistics related to resources, scope, costs, time, etc.  

Financial metrics are descriptive statistics, and they are an excellent way to assess a company to find out if it is worth someone’s investment. These metrics are one of the key criteria for a business being successful. Moreover, executives or managers often use Financial Metrics to compare the financial position of one company against competitors or the market generally, to track performance or production.    

The Top Best Financial Metrics any business owner should track

There are various critical financial metrics to pay attention to depending on a goal that the person, who analyzes and measures them, wants to achieve. Here are the Most useful Top Best Financial Metrics any business owner should track:  

  1. Operating Cash Flow
  2. Working Capital  
  3. Revenue  
  4. Accounts Receivable Aging  
  5. Budget Analysis  
  6. Accounts Payable Aging  
  7. Break-even Point  
  8. Quick Ratio  
  9. Cash Runway  
  10. Average Customer Acquisition Cost  

Let’s discuss them one by one:  

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1. Operating Cash Flow (OCF). What is Operating Cash Flow?

   

Operating Cash Flow is one of the significant financial metrics that every business owner should be aware of. Operating cash flow is the amount of money an organization generates through everyday business operations.

The operating cash flow is positive enough to let the company sustain and grow its operations. So knowledge of this metric can provide a business owner the information on how much they can spend in the coming future.

Otherwise, if the OCF is negative, the company may need external financing for capital expansion. One of the reasons of which cause a negative OCF is customer’s late payments or unpaid bills.

  • How do you count your financial, business, scrum, or any other metrics?

  • Do you use any special Dashboard to track the metrics?

  • Do you follow their performance to evaluate them correctly?

2. Working Capital (NWC). How to count the Working Capital?

Working Capital or networking Capital (NWC) could be defined as the capital which businesses use in daily operations related to trading. It is a substruction of liabilities from existing (current) assets such as ready finished goods, money due, cash, accounts receivable, etc. The actual liabilities are accounts payable, debts or creditor liabilities, finance, expenses, and obligations, etc. It shows a short–term financial position and the health of the company

If this indicator is positive and substantial, the organization has the potential to grow and get investments. And the opposite, if the current liabilities exceed the existing assets, it may lead a company to bankruptcy or financial troubles 

3.Revenue

Revenue represents the amount of money you can get from selling products or offering services. As a business owner, your interest is to get the work as soon as possible at the delivery point to be able to invoice.

But sometimes, the team has work in progress for a longer period of time. As a business owner, your interest is to minimize it. Some tasks can last several days. Our advice is to divide a user story into smaller parts – tasks to follow their implementation.

Financial, Business and Scrum Metrics with Orli Dashboard

With Orli Dashboard you can see the amount of work in progress, the period of time in which a task status didn’t change, how long it took from creation to completion. You can see these metrics per team, per person, and for the entire company.

4. Accounts Receivable Aging.
What does Accounts Receivable Aging mean?

Accounts receivable aging is a report that defines how much time clients of a company need to cover their bills. Organizations regularly incorporate credit terms on a receipt that say how long the client needs to submit an installment. 30 days is a standard time to consider this financial metric.

In other words, the Aged receivables report shows the financial health of the clients and customers of the business organization. Suppose the report gives the information that the company collects its receivables slower than an average standard time. In that case, the organization should be careful because it could lead to very negative results.    

Aging of Accounts Receivables = (Average Accounts Receivables * 360 Days)/Credit Sales   

5. Budget Variance Analysis. Why does a company need the Budget Variance Analysis?

The “budget variance analysis” helps private company pioneers distinguish business spaces where they’re overspending that might require further consideration. It likewise uncovers areas of the business that beat assumptions.

So, it is about reorganizing and reviewing budget structure in detail. In this case, the company examines and explains the components of revenue and budget expenditure. The main aim is to realize how the company managed and spent its money, and if these expenses are suitable with the objectives of the company. 

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6.Accounts Payable Aging (A/P Aging Report)

                                                                                                                                 

Accounts payable aging represents balances that a company owes to other businesses (suppliers, partners, etc.).  A/P Aging Report is usually set for some time limit, primarily for 30 days. Because of the time buckets, supplier invoices in the report list will be 0-30 days old. Based on this report, the company can visualize how much it owes and organize its budget precisely.   

7. Break-even Point . What is Break-even Point?

The break-even point is when income is equivalent to costs, which means there is no profit or loss. It helps a business know when it will earn more than it spends and begin acquiring a benefit.   

8. Quick Ratio

The quick ratio, also called the acid test ratio, measures whether a business can fulfill its short-term financial obligations by assessing sufficient resources to pay off its current liabilities

The typical Quick Ratio equals 1.

If the quick ratio is less than 1, the company can’t pay its actual liabilities in a short period. At one time, if this metric is more than one, it could mean that the company gets rid of the current obligations.  

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9. Cash Runway. Why the Cash Runway is important?

Cash runway shows how long time an organization has before it runs out of its cash. These metrics depend on the accessible amount of money and how much a company spends each month.

For example, if you have 50 000 $ in your bank account and you spend 10 000$ monthly, it means your Cash Runway is 5 months. After 5 months, the organization can have money trouble it should think about.

So, it is crucial to know how much the business can spend not to run out of its budget. 

The formula is pretty simple:
Cash Runway = Cash balance / Monthly Burn Rate. 
 

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10. Average Customer Acquisition Cost ( Average CAC)

CAC is one of the most essential financial & business metrics that companies should always pay attention to. It is directly related to the organization’s customers and defines the resources the companies need to attract new customers and continue developing, growing in the future.

In other words, to calculate the Average Customer Acquisition Cost, the businesses need to calculate Marketing costs and divide them by CA amount (customers Acquired).

Average CAC = Marketing Costs (MC) / Number of Customers Acquired (CA)

To increase the Average CAC, the business owners should focus on client retention and upsells.

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Technology, even a basic economic system, can go a long way toward helping companies track these numbers and spot changes that may positively or negatively impact their financial health.

 All these financial metrics are vital to know for small firms or big corporations, in general, for any size of the company to face all market challenges, survive and thrive in the highly competitive 21st-century market. 

This article discussed the Top 10 best financial metrics every business owner should know, but actually, they are more. For instance, it is also essential to define ROI (return on investment) or earnings per share and other meanings. We will have a separate article on other financial and business metrics in the coming future. 

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