Small Business Financial Health Check: Are You Tracking These 7 Financial KPIs?
Have you ever sat at your desk, spreadsheet open, and wondered whether the numbers you’re tracking actually show how your business is doing or just how busy you’ve been?
In the hustle of running your company, keeping on top of sales, staff, suppliers, and software, it’s all too easy to overlook the business’s underlying health. That’s why performing a proper small business financial health check is so essential; it gives you clarity, control, and confidence.
If you’d like help with this process, call us on 01322 250 001 or email info@adams-accountancy.co.uk
Our experts at Adams Accountancy believe the best small businesses keep their financial vital signs front of mind because a healthy business can grow with confidence.
Why Conduct A Small Business Financial Health Check?
When you hear “financial health check”, think of a business equivalent of a medical check-up: checking the vital signs, spotting early warning signals and acting before things turn urgent. For many SMEs, compliance (tax, VAT, payroll) is the immediate priority. As we explain on our accounts preparation page, those tasks are essential.
But once those basics are covered, you need to go a step further and monitor how your business performs over time. That’s what a financial health check does.
Tracking the right Key Performance Indicators (KPIs) gives you:
- A clear snapshot of current performance
- Early warning of issues (e.g., cash-flow pinch points, margin erosion)
- Insight to support strategic decisions (investment, recruitment, growth)
- A way to benchmark progress and stay accountable
We’re going to take you through seven essential KPIs that essentially act as your business’s vital signs.
The 7 Financial KPIs To Monitor
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Gross Profit Margin
This shows how much of each pound of sales remains after you’ve paid for the direct costs of producing goods or services (materials, labour, etc).
Why it matters: If the margin is shrinking, you may be under-pricing, facing higher costs or losing control of your product mix.
How to calculate: (Sales – Cost of Sales) ÷ Sales × 100.
Action tip: Review pricing and cost inputs quarterly; ask, “Are we selling the right products at the right price?”
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Net Profit Margin
Once you’ve deducted all expenses (overheads, marketing, rent, payroll), the net profit margin tells you how much is left.
Why: A healthy net margin means your business is resilient; any dip means less room for unexpected costs.
How to calculate: (Net Profit ÷ Sales) × 100
Action tip: Benchmark against your sector and track whether you’re improving or slipping.
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Cash Flow (Operating)
A business can show a profit but still struggle if cash flow is weak, an issue we flagged in our blog on financial statements.
Why: Cash is king. Late payments, stock build-up, and slow turnover erode cash even in profitable businesses.
How to monitor: Set a rolling 3-month cash-flow forecast. Check actual vs forecast monthly.
Action tip: Tighten payment terms, chase debtors or adjust billing cycles to keep cash moving.
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Working Capital Ratio (Current Assets ÷ Current Liabilities)
This measures short-term financial strength.
Why: If the ratio falls too low, you may struggle to meet short-term obligations.
How: Current Assets ÷ Current Liabilities. A ratio below 1 suggests risk; above 1.5 is healthier.
Action tip: Build the buffer by retaining profits, managing stock levels and reviewing creditor terms.
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Debtor Days (Days Sales Outstanding)
This shows how quickly you collect cash from customers, one of the most frequent causes of pressure in a small business.
Why: Long-standing debtors tie up cash and raise the risk of bad debts.
How to calculate: (Debtors ÷ Annual Credit Sales) × 365
Action tip: Set clear payment terms (e.g., 30 days), offer incentives for early payment, and chase proactively.
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Expense Growth Rate Vs Revenue Growth Rate
It’s not enough for turnover to grow; expenses must grow at a controlled pace.
Why: If expenses grow faster than revenue, your profitability will drop.
How: Compare the % increase in expenses year-on-year to the % increase in revenue.
Action tip: Review each cost line for value and necessity; insist on quarterly expense reviews.
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Return On Capital Employed (ROCE)
This shows how well your business is using the money invested in it.
Why: A low ROCE means capital (assets, equity) is under-utilised; a high ROCE suggests efficient performance.
How: Net Profit ÷ (Total Assets – Current Liabilities) × 100
Action tip: Use ROCE to decide whether to invest in new equipment, hire staff, or improve utilisation of existing resources.
How We Help With Your Financial Health Check
At Adams Accountancy, we don’t just prepare your accounts and file your tax returns; we help you understand and act on your numbers. Whether you’re a start-up just getting off the ground or an SME looking to scale, we provide tailored support in areas such as:
- Accounts preparation (statutory accounts and corporation tax)
- Bookkeeping and management accounts to ensure timely insight
- Payroll, PAYE and CIS services
- VAT planning and compliance
By embedding monthly or quarterly KPI reviews into our service, we help you move from reactive to proactive financial management.
Conclusion: Take Control Of Your Financial Future
So, in short, nowadays in this business environment, simply keeping your accounting records up to date isn’t enough. A meaningful small business financial health check goes deeper; it tracks the vital signs of your business so you can plan, adapt and grow with confidence.
By monitoring the seven KPIs we’ve described above, you’ll gain a sharper view of your business’s health, spot issues early, and focus your time on the strategic decisions that matter. At Adams Accountancy, we’re here to support you through that journey from compliance to insight to growth.
Call us today on 01322 250 001 or email info@adams-accountancy.co.uk to find out how we can tailor a financial health check for your business.
FAQs
Q1: How often should I review these KPIs?
Aim for monthly for cash-flow, debtor days and working capital; quarterly for margin, ROCE and expense growth.
Q2: What’s a “good” Gross Profit Margin for a small business?
That depends on your industry. As a rule of thumb, aim to maintain or improve your margin year on year and compare it with sector benchmarks.
Q3: Can I track these KPIs in cloud software?
Yes. Platforms like Xero or QuickBooks (which we use) integrate with dashboards and reporting tools to track KPIs in near real time.
Q4: I don’t have the capacity for KPI tracking. Can you help?
Absolutely. Our Bookkeeping and Management Accounts service is designed for that very reason; we set up the metrics and present the results clearly.
Q5: What if one KPI suddenly drops?
Don’t ignore it. Use it as a trigger to investigate. For example, a spike in debtor days might mean a major customer is delaying payment, which could lead to a cash-flow crisis.