Let’s be honest, it’s a tough time to be running a small business. Your business is trading in one of the toughest financial environments we’ve seen in some years.

According to the latest stats from the Australian Bureau of Statistics, almost half (46%) of businesses have reported operating expenses increasing over the past four weeks. Fuel prices (71%) and business overheads (65%) are reported as the main reasons for these increased operating expenses, putting more pressure on margins and cashflow.

To protect your bottom line and maintain steady cashflow, it’s vital to track your finances and keep a close eye on the key financial metrics.

Here are five core financial metrics your Aussie small business should be tracking.

1. Revenue growth

Revenue isn’t just your total sales figure before deductions. Your revenue metric is also a baseline measure of market demand for your products or services.

By tracking your monthly revenue growth, you can spot seasonal trends, gauge the success of pricing updates and ensure your incoming revenue keeps pace with the pressure of rising costs and overheads.

2. Operating expenditure (OpEx)

With supplier costs and fuel expenses shifting rapidly, monitoring your overhead expenses is a vital part of controlling your spending and cashflow position.

Keeping a close eye on your operating expenses (OpEx) helps you see where your operational spending is creeping up or rising costs are eating into your margins. By spotting the potential spending challenges, you can cut unnecessary spending or re-negotiate better terms.

3. Cashflow and cash runway

Cashflow tells you how much liquid cash you have available in the business.

Your net cashflow metric shows you exactly how much money is moving into and out of your bank accounts. Your cash runway metric tells you how many months your business can operate with its current cash balance. Tracking your cash position properly is essential. Liquid cash is what pays your supplier bills, covers your tax liabilities and pays your team’s payroll and super.

4. Debt/equity levels and serviceability

When you take out a bank loan, that loan becomes a liability (or debt) on the company’s balance sheet. With borrowing costs elevated at the moment, servicing this debt can quickly turn into a major strain on your cashflow.

Monitoring your total liabilities against owner equity and tracking your ability to meet repayments — helps you manage the debt in a responsible way.

5. Gross and net profit margins

When operational expenses are high, revenue can become a misleading measure of your overall success and demand in the market. Tracking your gross and net margins can be a more effective way to track your financial health.

Your gross margin figure shows the percentage of total sales revenue your business keeps after paying the direct costs of making your products or services. Your net margin figure, with all costs accounted for, reveals what percentage of revenue actually stays in the business after all your overheads are paid.

Tracking the financial metrics that matter

Tracking these five fundamental metrics is key to managing your financial health. And it’s far easier to achieve with today’s cloud accounting tools.

Business platforms like Xero and MYOB give you real-time access to all these metrics, helping you keep on top of your revenue, spending, cashflow, debt and overall profitability.

This means:

• Instant financial visibility of your financial position, in seconds
• Warning signs of any financial obstacles, before they become an issue
• Data-driven decision-making to guide the next steps in your strategy

Talk to us about tracking the metrics that matter

If you’re not sure whether your current reporting is giving you the visibility you need, our accounting and advisory team can help. We work with Australian small businesses on setting up management reporting that surfaces the metrics that actually drive decisions not just the compliance numbers that end up in a tax return. Our fractional finance team can also step in for businesses that need CFO-level oversight without a full-time hire.

Get in touch with Outback Accounting to talk about improving your financial reporting and metric tracking.