12 Often-Overlooked KPIs New Businesses Should Be Tracking

Most businesses develop a list of key performance indicators (KPIs) to assess current strengths and potential weaknesses as the company grows. However, there are key data points that many new business owners and entrepreneurs may not realize the significance of when just starting out.

The real problem is that if data aren’t gathered in all crucial areas, you may be operating with a significant blind spot. Below, 12 members of Forbes Finance Council share often-overlooked KPIs new businesses and entrepreneurs need to track to get a full picture of their company’s health.

1. Cash Flow

For any business, but certainly a small business, cash is king. So the most important KPIs are those that provide leading indicators of cash flow. A simple metric to track is accounts receivable days sales outstanding, or DSO. If this is managed and you don’t pay your bills too fast (but please pay them), you can effectively manage cash flow. - Arun Prakash, Cerebri AI

2. Profit Per Employee

As you grow a small business it can be difficult to know when to hire and when not to hire. Keeping a close eye on the profit per employee KPI will act as a guide for when your company should hire someone or not. Every business type will be slightly different in the number, so you'll need to calculate it monthly the first few years to determine what works best for your business. - David Gass, Anderson Business Advisors, LLC

3. Employee Turnover

While most institutions focus on sales, revenue or detailed client KPIs, the ones that focus on employee-related metrics often outperform their finance-centric counterparts. When turnover is low and employee confidence and morale is high, the financial KPIs tend to follow suit, as management has done their job in creating a centralized mission and path to success. - Damian Lo Basso, Compass CFO Solutions

4. Inventory Turnover

Many people do not maintain real-time inventory numbers, relying on end-of-year counts to update their balance sheets. Understanding the shelf life of your goods is crucial to helping with cash flow. Over the years we have pushed our credit with vendors and shortened our accounts receivable turnover so that all inventory is sold and we have received all client payments prior to having to pay our vendors. - Marjorie Adams, Fourlane

5. Gross Profit

Improved analytics and KPIs inundate today’s business owner. Rather than pay attention to these metrics, today’s business owner would be well-served to focus on the most critical metric—gross profit (GP). Gross profit measures the effectiveness of sourcing and pricing; it alone generates the ability to meet overhead requirements and results in a profit. Remember, revenues don’t pay bills—GP does. - Brian Daniells, Signature Analytics

6. Proactive KPIs

Some of the most important leading indicators aren’t ones you can simply observe without being proactive. All the financial metrics are critical, but measuring client satisfaction—via net promoter score (NPS) or another means—and measuring employee engagement are the best indicators that give me actionable information earlier versus later. But you have to ask. - Robert Roley, SS&C

7. Cash To Revenue

This KPI should significantly influence every business decision an owner makes. We recommend having 10% of annualized revenue in the bank at all times—that’s roughly two months’ worth. Why? Any challenge you face as a business owner or entrepreneur will be handled differently when you have cash in the bank. You can handle anything when your cash position is good. - Jody Grunden, Summit CPA Group

8. Customer Acquisition Cost

Knowing your customer acquisition cost is an important metric many fail to prioritize on their list of KPIs. If an organization focuses on how to more effectively spend their marketing efforts or get a higher yield on their current spend, they can make necessary adjustments to closer perfect their systems and increase immediate return on investment. - Sina Azari, PRESENT Financial Partners

9. Revenue To Employee Ratio

Focusing on the ratio of revenue to employee is a great way to assess the health of your business and show a path to scale. If a business can show growth in this KPI, it is a good indication the business is sound and efficient. It also makes the business more interesting—and potentially desirable—to investors. - Ben Gold, QuickBridge Funding

10. Capital Spend Versus Depreciation

Develop a CAPEX key performance indicator where you track capital expenditure dollars (CAPEX) against the depreciation expense, year over year. This KPI helps new business owners understand if they are investing in assets at standard or outstanding levels. The average CAPEX spend for new business owners should be equal to or less than depreciation to establish stability. - Geanette Rodriguez-Ojeda, ARRI Rental

11. Throughput Time

Throughput time is the time it takes from start to finish to bring the product or service to a completed cycle. A business has many processes—servicing processes, inventory processes and manufacturing processes are just a few. However, many businesses fail to acknowledge the time constraints within the overarching processes. Thus, this KPI cannot be overlooked. - Justin Goodbread, Heritage Investors

12. Cash Reserves

Businesses need to be prepared for a bump in the road. Maintaining an appropriate cash reserve helps a business survive tough times. Depending on the nature of the business, a reserve could be a few weeks or a year. Not dipping into this unless it’s absolutely needed is the key, along with not saving too much, which means you could be missing good opportunities. Figure out your safety net and stick with it. - Chris Tierney, Moore Colson CPAs and Advisors