As an accountant, one of the most common things we see with small business owners is a strong focus on sales but not enough attention to the numbers behind those sales.
Revenue is important, but it doesn’t tell the whole story.
A business can have strong sales and still experience cash-flow problems, declining margins or disappointing profits. That’s why we encourage business owners to look beyond their bank balance and monthly sales figures and regularly track a small number of meaningful Key Performance Indicators (KPIs).
When reviewed consistently, KPIs can help you understand what’s happening in your business, identify potential problems early and make more informed decisions.
Here are the KPIs we believe every small business owner should consider reviewing each month.
1. Revenue and Revenue Growth
Revenue is usually the starting point for any business performance discussion.
Each month, we recommend looking at:
- Total revenue
- Revenue compared with the previous month
- Revenue compared with the same period last year
- Revenue growth percentage
- Revenue by product or service
Looking at the trend is often more useful than focusing on one month’s result.
For example, a business may have an excellent month because of a one-off project. Without looking at the broader trend, an owner could mistakenly assume that level of revenue is sustainable.
From an accountant’s perspective: We want to understand why revenue has changed, not just whether it has increased or decreased.
2. Gross Profit Margin
One of the most important KPIs we encourage business owners to monitor is gross profit margin.
Gross profit is what remains after deducting the direct costs associated with delivering your products or services.
Gross Profit Margin = Gross Profit ÷ Revenue × 100
Suppose your business generates $100,000 in revenue and your direct costs are $60,000. Your gross profit is $40,000, giving you a gross profit margin of 40%.
If your revenue increases but your gross margin falls, you may actually be making less money from each sale.
Changes in supplier costs, pricing, discounts, product mix and labour costs can all affect your margin.
Our advice: Don’t automatically assume that more sales mean more profit.
3. Net Profit Margin
Gross profit doesn’t include all the costs of running your business. That’s where net profit comes in.
Net Profit Margin = Net Profit ÷ Revenue × 100
This tells you how much of your revenue is left after your business expenses.
For example, if you generate $100,000 in revenue and make $10,000 in net profit, your net profit margin is 10%.
Tracking this figure month after month helps identify whether your business is becoming more or less profitable.
As accountants, we also look at what is driving the change. A declining profit margin could be caused by higher wages, rent, marketing expenses, finance costs or simply declining gross margins.
4. Cash Flow
Perhaps the biggest misconception we see is:
“We’re profitable, so why don’t we have any cash?”
Profit and cash flow are different.
You may have made a sale and recorded the revenue, but if the customer hasn’t paid yet, you don’t have that cash available to pay your bills.
Each month, review:
- Cash at bank
- Cash received
- Cash paid
- Outstanding invoices
- Upcoming expenses
- Tax obligations
- Loan repayments
A simple cash-flow forecast can also help you identify potential funding requirements well before you run out of cash.
From an accountant’s perspective: Cash-flow forecasting isn’t just for businesses experiencing financial difficulty. It’s an important planning tool for healthy, growing businesses too.
5. Accounts Receivable and Debtor Days
If customers are taking too long to pay, your business may be effectively financing them.
Debtor Days measures the average time it takes customers to pay their invoices.
If debtor days are increasing, it’s worth investigating why.
Are invoices being sent promptly? Are payment terms clear? Are customers consistently paying late?
Improving your collection process can sometimes have a bigger impact on cash flow than increasing sales.
6. Operating Expenses
Every business has expenses, but that doesn’t mean every expense should continue unchecked.
Review your major operating costs each month, including:
- Wages
- Rent
- Software
- Insurance
- Marketing
- Professional fees
- Vehicle expenses
- Utilities
- Interest and finance costs
Compare these expenses with your budget and previous periods.
We often recommend paying particular attention to expenses that are increasing faster than revenue.
A $100 monthly subscription may not seem significant, but dozens of unnecessary or underused subscriptions can add up considerably over a year.
7. Break-Even Point
Do you know exactly how much your business needs to sell each month just to cover its costs?
Your break-even point provides the answer.
For example, if your fixed costs are $30,000 per month and your contribution margin is 50%, you would need $60,000 in revenue to break even.
Understanding this number gives business owners a useful benchmark when setting sales targets and making decisions about pricing, staffing and expenses.
Your accountant can help calculate your break-even point and regularly update it as your costs and pricing change.
8. Average Transaction Value
For businesses that make multiple sales or transactions, average transaction value can be a useful KPI.
Average Transaction Value = Total Sales ÷ Number of Transactions
If you can increase the average transaction value, you may be able to grow revenue without increasing your customer numbers by the same amount.
This can be achieved through upselling, cross-selling, bundling products or introducing higher-value services.
9. Customer Acquisition Cost
If you’re investing in marketing, you need to know whether that investment is generating worthwhile returns.
Customer Acquisition Cost (CAC) = Sales and Marketing Costs ÷ Number of New Customers
For example, if you spend $5,000 on marketing and acquire 50 new customers, your customer acquisition cost is $100.
But CAC shouldn’t be viewed in isolation.
Ideally, compare it with the revenue and profit generated by those customers over time.
A low-cost customer isn’t necessarily valuable, and an expensive customer isn’t necessarily unprofitable.
10. Payroll as a Percentage of Revenue
For many small businesses, employees are one of the largest costs.
Tracking payroll as a percentage of revenue can help you determine whether your staffing costs are moving in line with business activity.
Payroll Percentage = Payroll Costs ÷ Revenue × 100
This can be particularly useful when you’re considering hiring additional staff.
Rather than simply asking, “Can we afford another employee?”, you can examine the numbers and consider whether the additional employee is likely to generate enough value or revenue to justify the cost.
11. Tax and Statutory Liabilities
Tax obligations should never come as a surprise.
As part of your monthly financial review, keep an eye on upcoming obligations such as:
- GST
- Income tax
- Payroll-related obligations
- Superannuation
- Instalment payments
- Other applicable statutory liabilities
The specific obligations will depend on your business structure and circumstances.
Setting aside money throughout the year can make tax payments much easier to manage.
Tip: Treat tax as a regular business expense rather than something to worry about when the bill arrives.
12. Budget vs Actual Results
One of the most valuable reports we review with business owners is the budget-to-actual report.
It answers a simple question:
Did the business perform as expected?
For example:
| KPI | Budget | Actual | Variance |
|---|---|---|---|
| Revenue | $100,000 | $95,000 | -$5,000 |
| Gross Profit | $45,000 | $41,000 | -$4,000 |
| Expenses | $30,000 | $32,000 | +$2,000 |
| Net Profit | $15,000 | $9,000 | -$6,000 |
The variance is only the beginning of the conversation.
The important question is why the result was different.
Was revenue lower than expected? Did costs increase? Were margins affected? Was the difference temporary or likely to continue?
This is where an accountant can add significant value.
Don’t Track KPIs Just for the Sake of It
One of the biggest mistakes we see is businesses tracking too many numbers without knowing what to do with them.
You don’t need a dashboard containing 50 different KPIs.
For most small businesses, a focused monthly dashboard covering 8–12 key measures can provide a much clearer picture.
More importantly, each KPI should lead to a question or potential action.
For example:
Revenue is down: Why?
Gross margin is down: Have costs increased or pricing changed?
Debtor days are up: Why aren’t customers paying on time?
Cash is falling: What payments are coming up?
Expenses are rising: Which costs are driving the increase?
Profit is improving: What’s contributing to the improvement?
We Can Help Turn Numbers Into Decisions
Your monthly accounting meeting shouldn’t simply be about checking whether the books have been reconciled.
It should be an opportunity to step back and ask:
“What are the numbers telling us about the business?”
An accountant can help you identify trends, interpret variances, assess cash flow, review profitability and understand the financial implications of your business decisions.
The goal isn’t simply to produce reports.
It’s to use those reports to make better decisions.
In Summary
The strongest businesses aren’t necessarily those with the highest revenue. They’re the businesses that understand their numbers and use them to make informed decisions.
By tracking the right KPIs every month, small business owners can gain greater visibility over profitability, cash flow, costs, customers and future performance.
And when those numbers are reviewed with your accountant regularly, they become much more than figures on a spreadsheet. They become a practical tool for managing and growing your business.
If you don’t know which numbers matter most to your business, start by speaking with your accountant. The right KPI dashboard should reflect your business model, your goals and the decisions you need to make.