Key Financial Metrics For Business: What to Track to Grow Smarter and Stay Profitable - Accion Opportunity Fund Key Financial Metrics For Business: What to Track to Grow Smarter and Stay Profitable - Accion Opportunity Fund

Key Financial Metrics For Business: What to Track to Grow Smarter and Stay Profitable

Running a small business is more than just making sales – it’s about keeping your business financially healthy so you can survive and grow

How can you tell if your business is financially healthy?

By tracking a few key financial metrics that act like your business’s “vital signs.” These metrics fall into four main categories – profitability, liquidity, solvency, and operating efficiency – which experts say are critical financial areas to watch in combination​. In this guide, we’ll break down each category in simple terms, explain the formulas, and give real-world examples.

Don’t worry if you’re not a “numbers person” – we’ll keep it jargon-free and actionable. By the end, you’ll know how to answer the question: How healthy is your business?

Why does this matter? Tracking these metrics can help you spot problems early and make informed decisions. For example, Alicia Villanueva – who started by selling tamales door-to-door – closely monitored her finances as she expanded her business. With training, perseverance, and a small loan from Accion Opportunity Fund, she bought her first delivery van and transformed her venture into a thriving operation with a 6,000 sq. ft. production space and 14 employees​. 

Whether you’re just starting out or already growing, mastering these key metrics will empower you to make confident decisions. And as a mission-driven nonprofit lender, Accion Opportunity Fund (AOF) is here to help – with business coaching, educational resources, and affordable loans tailored for underinvested small business owners. In fact, AOF isn’t just another lender; it’s a partner in your success​. Let’s dive into the metrics that matter for your business’s financial health.

Profitability Metrics: Is Your Business Earning Enough?

Profitability metrics tell you how well your business is generating profit from its sales. In other words, are you making money after covering your costs? Profit is the fuel that lets you reinvest, grow, and sustain your company over time – so these metrics are perhaps the most important for long-term business health​. Here are the key profitability metrics and how to use them:

Gross Profit Margin

What it is: Gross profit margin measures the percentage of revenue that remains after covering the direct costs of producing your product or delivering your service. Those direct costs are usually called Cost of Goods Sold (COGS) or cost of sales – for example, materials and labor. Gross profit margin basically shows how efficiently you are turning your costs into profit at the most fundamental level of your business.

Gross Profit Margin Formula:

Gross Profit Margin = (Revenue – Cost of Goods Sold) / Revenue × 100%

Net Profit Margin = Net Profit / Revenue × 100%

Operating Profit Margin = Operating Profit / Revenue × 100%

Why it matters: Operating margin shows how well your day-to-day business is managed. An increasing operating margin can indicate better cost control or improved efficiency in operations​. It’s very useful for tracking internal performance over time. Maybe you introduced a new process or technology that reduced labor hours – you’d likely see improvement in your operating margin. Conversely, if your operating margin is shrinking, it’s a prompt to review your operating costs. Are administrative expenses creeping up faster than sales? Are you spending more on marketing without results? Since this metric excludes interest, it also lets you compare performance regardless of how the business is financed.

Actionable insight: Use operating margin to drill down: it’s basically net margin before interest and tax, so it isolates your operational efficiency. If your gross margin is fine but your net margin is suffering, check the operating margin – if it’s low, the issue lies in your overhead or admin costs. Many small business owners find this metric helpful for budgeting – e.g. setting a goal that operating expenses should not exceed, say, 80% of gross profit (which would ensure a 20% operating margin). By tracking this, you can make adjustments like cutting unnecessary subscriptions, improving staff productivity, or reducing waste in the production process.

Return on Assets (ROA)

What it is: Return on Assets measures how effectively your business uses its assets to generate profit. “Assets” include everything the business owns – cash, equipment, inventory, etc. ROA tells you what kind of bang you’re getting for each buck invested in assets. It’s especially useful for understanding efficiency in asset-heavy businesses (like manufacturing or trucking).

Return on Assets = Net Profit / Total Assets × 100%

Why it matters: ROA shows how efficiently you are using your resources to generate profits. A higher ROA indicates a more efficient use of assets. If two businesses both earn $50,000 profit, but one needs $500,000 of assets to do it and the other only $250,000, the latter is getting more out of each dollar of assets (20% ROA vs 10% ROA). 

Small business owners can use ROA to evaluate investments: say you buy a new delivery truck – did that asset help increase your profits proportionally? If not, your ROA might drop, signaling that the asset isn’t being used to its full potential (perhaps the truck isn’t doing enough deliveries).

Actionable insight: Compare ROA year over year. If you invested in new equipment or expanded your inventory, check your ROA after a year. Is your profit growing relative to your assets? If ROA is declining, you might have idle assets or need to boost sales. For example, a home-based boutique might have very few assets (mostly inventory), so a modest profit can yield a high ROA – that’s good. But if the owner takes out a big loan for a fancy storefront (increasing assets) and profits don’t rise enough, ROA will plunge – a sign that the new asset isn’t paying off. Use ROA to keep an eye on investment efficiency. (For very small or service-based businesses with minimal assets, ROA might be extremely high or not as relevant – focus more on profit margins in that case.)

Summing up Profitability: Profitability metrics are like a report card for your business’s money-making ability. They help answer questions like: Am I pricing correctly?, Are my costs under control?, Am I improving in efficiency? 

By tracking gross margin, net margin, operating margin, and ROA, you get a complete picture from the top line to the bottom line. Remember, even if profits are small in the beginning (a lot of startups break even or lose money initially), the goal is to see improvement in these metrics over time. Celebrate small wins – an uptick in gross margin or achieving your first profitable month. Each improvement means your business is getting healthier financially.

Liquidity Metrics: Can You Pay the Bills?

Liquidity is all about cash flow and short-term financial stability. In simple terms, liquidity measures your ability to meet immediate obligations – to pay your bills, payroll, and other expenses that are due soon. A company can be profitable on paper but still run into trouble if it doesn’t have enough cash on hand at the right time. (In fact, running out of cash is a common reason small businesses fail, even if sales are strong.) Liquidity metrics help ensure you have the cash reserves or assets easily convertible to cash to cover upcoming needs​. Here are the key liquidity metrics:

Current Ratio

What it is: The current ratio is a classic measure of liquidity. It compares your current assets to your current liabilities. Current assets include cash, accounts receivable (money customers owe you), inventory, and other assets you expect to turn into cash within about a year. Current liabilities are obligations due within a year, like accounts payable (bills to suppliers), short-term loans, credit lines, or upcoming tax payments.

Current Ratio = Current Assets / Current Liabilities

What it means: A current ratio of 1.0 means your short-term assets exactly equal your short-term liabilities. Above 1.0 means you have more current assets than liabilities (a cushion); below 1.0 means you have more liabilities than assets (potential liquidity crunch). In our example, 1.43 suggests a decent cushion – you have $1.43 in current assets for every $1.00 of liabilities due soon. Generally, higher is better for the current ratio, but there’s a point of diminishing returns. If it’s too high (say 5.0), it might mean you are sitting on a lot of cash or inventory that could be invested or used more productively.

Why it matters: The current ratio is a simple way to gauge if you can pay your bills on time. Many bankers and creditors look at this ratio to assess financial health. If your current ratio is consistently below 1, it’s a red flag that you might struggle to meet obligations – you could be one unexpected expense away from a cash shortfall. For example, imagine a small retail shop with a current ratio of 0.8 – perhaps because they have a loan payment due next month that exceeds their cash on hand. The owner should take action (increase cash, refinance debt, etc.) to avoid trouble. On the other hand, if the shop has a current ratio of 1.5, it likely has some breathing room to handle surprises (like a sudden supplier price increase or a late-paying customer).

Actionable insight: Track your current ratio regularly (monthly, for instance). If you see it trending down toward 1 or below, consider steps to boost liquidity: collect receivables faster, reduce excess inventory (convert it to cash), or possibly slow down certain payments if appropriate (without damaging relationships). Building a cash buffer (even a few weeks’ worth of expenses) can improve your current ratio and your ability to sleep at night! Remember, cash is king – profitability is important, but cash flow keeps the lights on.

Quick Ratio (Acid-Test Ratio)

What it is: The quick ratio is a more conservative version of the current ratio. It answers: if you had to pay all your bills right now, do you have enough assets that are almost immediately convertible to cash? The quick ratio excludes inventory and other less liquid current assets, focusing only on your most liquid assets (cash, receivables, short-term investments). It’s called the “acid-test” because it’s a harsh test of liquidity.

Quick Ratio = (Current Assets – Inventory) / Current Liabilities

What it means: A quick ratio of 1.0 or higher is often recommended, especially for businesses that carry inventory. In the example, the current ratio was 1.43, but the quick ratio is 0.86 – the difference tells us this company’s liquidity is heavily dependent on turning that inventory into sales. If a lot of your current assets are tied up in inventory (or things like prepaid expenses), the quick ratio reveals a more cautious picture. Service businesses (with little or no inventory) often have current ratio = quick ratio. But a retail store or manufacturer might have a much lower quick ratio than current ratio.

Why it matters: The quick ratio is about immediate liquidity. It’s useful for understanding your worst-case scenario readiness. If an emergency arose – say an unexpected expense or an economic downturn – could you handle short-term obligations without relying on selling inventory? For a small business owner operating a boutique, knowing the quick ratio might prompt them to maintain a reserve of cash and receivables to cover at least 3 months of bills, in case inventory sales slow down. A lender might also check your quick ratio when assessing your loan application to ensure you’re not stretched too thin on cash.

Actionable insight: If your quick ratio is low (<1), it doesn’t automatically mean trouble, but it means you should be aware of the risk. You might manage inventory levels more tightly or build up a bit more cash reserve. Some ways to improve your quick ratio: collect accounts receivable faster (offer a small discount for early payment, perhaps), or avoid overstocking inventory by ordering in smaller batches more frequently. Essentially, think of the quick ratio as encouragement to keep some assets in truly liquid form. It’s like having an emergency fund for your business. If you’re a freelancer or service provider with no inventory, your quick ratio might be fine – just ensure your accounts receivable are collectible on time.

Working Capital

What it is: Working capital is not a ratio but a raw dollar figure: Current Assets minus Current Liabilities. It represents the short-term capital available to run your day-to-day operations. Positive working capital means you have more short-term assets than short-term debts, which is generally a good thing.

Working Capital = Current Assets – Current Liabilities

Using our example numbers: $50,000 in current assets – $35,000 in current liabilities = $15,000 in working capital. That means after paying off all current obligations, you’d still have $15K left to work with in the short term.

Why it matters: Working capital is a straightforward way to measure liquidity in dollars. It answers, “How much money (net) do we have to keep the business running?” If your working capital is negative, you’re essentially short on cash to cover near-term bills, which can lead to serious issues (missed payments, need for emergency loans, etc.). Positive working capital is generally needed to fund inventory purchases, cover payroll, and bridge timing gaps in cash flow. For example, if you run a small construction company, you often have to pay for materials and labor before you get paid by your client. Adequate working capital covers that gap. If you find yourself waiting on client payments and struggling to pay your crews, that’s a sign your working capital is too low for the scale of your operations.

Actionable insight: Calculate your working capital regularly and watch the trend. If it’s shrinking, investigate why. Maybe you took on more short-term debt or your inventory expanded. Improving working capital could involve speeding up cash inflows (e.g. invoice promptly, enforce payment terms) and delaying cash outflows where possible (e.g. negotiate longer payment terms with suppliers). 

You can also consider a working capital loan or line of credit to bolster short-term cash – a product that Accion Opportunity Fund offers specifically to help businesses manage liquidity​. The good news is AOF and other nonprofit lenders often look at your whole business story, not just the numbers, when deciding on such loans​ – so even if your working capital is tight, they may provide financing based on your potential and character.

Operating Cash Flow & Cash Flow Forecast (Cash is King)

In addition to the formal ratios above, it’s crucial to keep an eye on your cash flow from operations. This isn’t a single formula, but rather tracking the actual cash moving in and out of your business each month. You might be profitable and still have a cash crunch if, for example, your cash is tied up in inventory or customers pay invoices slowly. Make it a habit to review your cash flow statement or at least a basic cash ledger monthly.

A related concept is your cash flow forecast or cash runway: how many months can you operate with the cash (and expected inflows) you have now? If you have $20,000 cash and you typically have net outflows of $5,000 per month (perhaps you’re still in early growth and reinvesting earnings, so expenses exceed receipts), then you have about 4 months of cash runway. This is especially important for startups that might be burning cash initially. Monitoring this tells you when you might need a financing boost or cost adjustment.

For instance, a tech startup run by an underserved entrepreneur might realize that at their current burn rate (cash usage per month), they’ll run out of cash in 6 months. Knowing this, they can plan ahead to either raise funds, secure a loan, or cut expenses before the bank account hits zero. It’s much easier to get financing when you’re not in a crisis mode. Accion Opportunity Fund’s business advisors often coach entrepreneurs on cash flow management – helping you forecast and plan so you’re prepared, not panicked, when expenses hit.

Summing up Liquidity: Liquidity metrics like current ratio, quick ratio, and working capital are your early warning system for cash flow issues. They ensure that profit on paper turns into cash in the bank to keep your business running. AOF business coach Ben might tell a client: “Good liquidity shows you have reserves for the unforeseen and you’re not overextended​.” By staying on top of liquidity, you can confidently answer “Yes” when asked, “Can you pay your bills and keep operating normally over the next few months?” If not, you now have the tools to take action – whether that’s cutting back, speeding up collections, or seeking a working capital loan to bridge the gap.

Solvency Metrics: Are You Built for the Long Haul?

Solvency metrics gauge your business’s long-term stability and debt management. While liquidity is about the here-and-now, solvency is about the long run: Can your business sustain itself and meet long-term obligations? Does your company have a healthy balance between what it owes and what it owns? For many small businesses, this often comes down to how much debt you’ve used to finance your operations and growth, and whether you can service that debt comfortably. Let’s explore the key solvency metrics:

Debt-to-Equity Ratio (D/E)

What it is: Debt-to-Equity ratio compares your total liabilities (debt) to your equity (the value of owners’ stake in the company). It tells you how leveraged your business is – in other words, to what extent you are financing your company through borrowing versus through your own capital or retained earnings.

Debt-to-Equity Ratio Formula:

Debt-to-Equity Ratio = Total Liabilities / Total Equity

For example, suppose your small manufacturing business has $100,000 in total liabilities (this includes all loans, outstanding bills, etc.) and $50,000 in equity (your investment plus any retained profits). Your D/E ratio is 100,000 / 50,000 = 2.0. This means you have $2 of debt for every $1 of equity in the business.

What it means: A D/E of 2.0 is relatively high – it indicates the business is more debt-funded than equity-funded. A D/E of 1.0 means equal debt and equity. A lower D/E (say 0.5) means you only have 50¢ of debt per $1 of equity, which is conservative. There’s no one “perfect” D/E across all industries; some capital-intensive industries naturally use more debt. However, for small businesses, a high D/E can be risky because it means heavy obligations to lenders. If anything hampers your revenue, a highly leveraged business might struggle to keep up with loan payments.

Why it matters: Debt-to-Equity is a fundamental indicator of financial risk and long-term solvency. It shows how much cushion you have from the owners’ side to absorb losses or downturns. If your business is highly leveraged (high D/E), you’re more vulnerable to economic swings – more of your revenue must go to fixed debt payments. For many underserved entrepreneurs, taking on debt is a double-edged sword: it can fuel growth, but too much can strain the business. Lenders and investors often look at D/E to assess if you have “skin in the game” and a balanced capital structure. AOF, for instance, as a responsible lender, would want to ensure that taking a new loan won’t over-leverage you to the point of jeopardizing your business’s health.

Actionable insight: Keep an eye on your D/E ratio whenever you take on new debt. If you are considering a loan, calculate how it will affect your D/E. There’s a common-sense guideline: don’t borrow more than your business can reasonably repay. In fact, one tip is to borrow no more than roughly 10–20% of your annual revenue in new debt to maintain a healthy balance​. For example, if your annual sales are $200,000, try to keep total debt under $40,000 (20% of sales) to avoid overextension​. To improve a high D/E ratio, you can either increase equity (e.g. reinvest profits, bring in an investor) or reduce debt (pay down loans, or refinance expensive debt to cheaper debt). Many small business owners strive to gradually lower their D/E as the business matures, giving them more resiliency.

One real-world scenario: A family-owned restaurant initially borrowed heavily to open a second location, spiking their D/E to 2.5. The owners realized this was stressing their cash flow, so they paused further expansion and focused on using profits to pay down debt. Over a couple of years, they brought D/E down to 1.2, significantly reducing their interest costs and risk. The lesson: grow at a pace that your solvency can handle. Debt can help you expand, but make sure your equity (and profits) keep growing alongside to maintain balance.

Debt Service Coverage Ratio (DSCR)

What it is: While D/E looks at your balance of debt vs equity, the Debt Service Coverage Ratio looks at your ability to service (pay) your debt from your business’s income. It’s the ratio of your operating income (or cash flow) to your debt payments (usually annual). Essentially, DSCR asks: Do you earn enough to comfortably pay your loan installments?

Debt Service Coverage Ratio Formula:

DSCR = Net Operating Income / Annual Debt Service

  • Net Operating Income can be thought of as your earnings before interest, taxes, depreciation, and amortization (EBITDA), or simply net profit plus those non-cash expenses – basically the cash available for debt payments.
  • Annual Debt Service is the total of all debt payments (principal + interest) required over the year.

For example, if your business generates $60,000 per year in operating income (before interest and taxes) and your total loan and interest payments for the year are $50,000, then DSCR = 60,000 / 50,000 = 1.2. This means you have 1.2 times the income needed to cover your debt obligations.

What it means: A DSCR of 1.0 means you have exactly enough income to pay your debts – but nothing extra. Above 1.0 means you have some cushion; below 1.0 means you don’t have enough income to cover debt payments (you’d have to use outside funds or dip into savings, which is unsustainable long term). In the example, 1.2 is a modest cushion – it implies that 83% of your operating profit goes toward debt service (1/1.2 = 0.833). Many lenders like to see a DSCR of 1.25 or higher, meaning you have at least 25% more income than needed for payments, to ensure buffer for unexpected dips in earnings. For small business owners, maintaining a healthy DSCR is crucial to avoid defaulting on loans.

Why it matters: DSCR is a key solvency (and creditworthiness) metric. When you apply for a business loan (especially bigger loans or SBA loans), lenders will often calculate your DSCR to judge if you can handle the payments. If your DSCR is below a threshold (often around 1.2), it may be a sign you’re biting off more debt than you can chew. Even internally, you should treat DSCR as a reality check: Can my current profits support my debt? If you have multiple loans or plan to take another, calculate your combined debt service and see if your projected income can cover it comfortably.

Actionable insight: Calculate your DSCR at least annually, or when planning to take new debt. If your DSCR is getting thin (close to 1.0), you have a few options:

  • Boost income: Increase sales or improve profit margins (easier said than done, of course, but any little improvement in profit will raise DSCR).
  • Refinance debt: Perhaps you can refinance high-interest debt into a longer-term or lower-rate loan, reducing the annual debt service and improving DSCR.
  • Reduce debt: Use surplus cash or profits to pay off small debts. This lowers your future debt service requirements.
  • Avoid new debt: Hold off on that new loan until you improve your DSCR through the above steps.

A practical example: Let’s say a minority-owned trucking business has two truck loans. Business has been slow, and their DSCR fell to 1.0 – essentially all their operating profit was going to loans. They approached AOF for refinancing. By consolidating into one loan with a longer term, their annual debt service dropped, and their DSCR improved to 1.3. This breathing room allowed them to invest in marketing to win more contracts. The improvement in DSCR was like unchaining the business from a tight spot.

Keeping an eye on DSCR ensures you’re not overburdened by debt. It’s about being solvent and staying in control of your finances, rather than your creditors being in control of your fate.

Solvency and Stability Tips

Aside from ratios, consider some general practices for solvency:

  • Build Equity: Reinvest profits into the business when possible. This not only fuels growth but also increases your equity (the “skin in the game”), which improves solvency metrics like D/E.
  • Avoid Over-Leveraging: It can be tempting to take a large loan when a lender offers it, but always ask if your business truly can support it. As mentioned, borrowing more than ~20% of your annual revenue could be a red flag. Growth is great, but sustainable growth is the goal – it’s okay to grow a bit slower if it means staying financially solid.
  • Emergency Fund for Debt: Try to keep a couple of months’ worth of loan payments in reserve. That way, if you hit a slow season, you won’t default. Think of it like keeping a few months of mortgage payments in savings for your business loans.
  • Monitor Interest Coverage: Similar to DSCR, Interest Coverage Ratio = EBIT / Interest Expense, which tells you how easily you can pay just the interest on your debt. If this ratio is high, your debt interest is not a burden; if it’s low (close to 1), you’re barely covering interest – a sign to reduce debt. Typically, a healthy interest coverage might be 3.0 or more (able to pay interest 3 times over with your operating profit).

Staying on Solid Ground with Your Loan

When you borrow money for your business, you want to make sure it’s helping—not hurting—you in the long run. That’s what “solvency” really means: being able to handle your debt without putting your business at risk. It’s about making sure the loans you take on are manageable and that you’re not stretched too thin.

For many entrepreneurs—especially those who’ve had a hard time getting approved by banks—getting funding is already tough. So when you do get it, it’s important to use it wisely. That’s where Accion Opportunity Fund (AOF) comes in. As a nonprofit lender focused on small businesses, AOF looks at more than just your credit score. They care about your story and your potential—and they want your loan to help you grow, not overwhelm you.

By keeping an eye on a few key numbers—like how much debt you have compared to your income—you can stay in control. It helps you make smart decisions about borrowing, investing, and building for the future without risking what you’ve already built.

Operating Efficiency Metrics: How Well Are You Using Your Resources?

Operating efficiency metrics show how effectively your business is using its resources (inventory, assets, and time) to generate revenue and manage costs. Think of these as measures of productivity and management finesse. They can highlight if you’re getting the most out of your investments in stock, equipment, and working capital. For small businesses, improving efficiency can directly boost profitability and cash flow. Let’s look at some key metrics in this category:

Inventory Turnover & Days Inventory

What it is: Inventory Turnover measures how many times you sell through your inventory in a given period (usually a year). It’s calculated as COGS divided by average inventory. A related metric is Days Inventory Outstanding (DIO), which tells you on average how many days an item stays in your inventory before being sold.

Inventory Turnover & Days Inventory Formula:

Inventory Turnover = Cost of Goods Sold / Average Inventory

Days Inventory Outstanding (DIO) = 365 / Inventory Turnover 

For example, your boutique has an average inventory of $30,000 (at cost) throughout the year, and your Cost of Goods Sold for the year is $120,000. Inventory Turnover = 120,000 / 30,000 = 4.0. This means you turn your inventory over 4 times a year. To find DIO: 365 / 4.0 ≈ 91 days. So on average, items sit about 91 days (roughly 3 months) before being sold.

What it means: Higher inventory turnover (and a lower DIO) generally indicates efficient inventory management – you’re selling goods relatively quickly and not tying up excess money in inventory. Lower turnover (high DIO) means inventory sits longer; this could be due to overstocking, slow sales, or obsolete items. For instance, if a bookstore has an inventory turnover of 2 (meaning stock turns over every 6 months on average), it might indicate a lot of books collecting dust on shelves, which is money sitting idle. In contrast, a grocery store might have turnover of 12 or more (restocking every month) because products move fast.

Why it matters: Inventory is basically cash in another form. If it’s not selling, it’s not only not generating revenue, but it also incurs holding costs (storage, risk of damage or spoilage, opportunity cost of tied-up cash). For small businesses, excess inventory = reduced liquidity. On the flip side, if turnover is too high, it could mean you’re running too lean and risk stockouts (losing sales because shelves are empty). Efficient inventory management finds the sweet spot. This metric is especially crucial for product-based businesses: retailers, manufacturers, wholesalers. A minority entrepreneur running a clothing boutique will want to keep fresh styles coming in, but also ensure last season’s items aren’t lingering too long. By tracking inventory turnover, she can make better buying decisions – maybe ordering smaller batches more frequently, or running promotions to clear slow-moving stock.

Actionable insight: Calculate inventory turnover at least annually, and ideally quarterly if you have seasonal cycles. Compare it to industry averages if available (e.g., apparel retail might have a different ideal turnover than electronics). If your turnover is low (inventory moving slowly), consider strategies like:

  • Running a sale or promotion to clear out old stock.
  • Improving marketing for those products.
  • Cutting back on how much inventory you purchase or produce until sales catch up.
  • Diversifying your product mix to focus on faster-selling items.

If your turnover is very high, congratulations – but ensure you’re not losing potential sales by running out of stock. You might need to increase order quantities or reorder faster. Modern point-of-sale systems can help track this, but even a simple spreadsheet can do the job for a small business: list your beginning and ending inventory values and sales, compute turnover, and monitor it over time.

One success story: a small Latinx-owned grocery learned through coaching that their inventory turnover on certain imported spices was only 1 (once per year!). They realized they were over-ordering those items. By reducing the order size and frequency, they freed up cash to invest in more popular products, which raised overall turnover and profits. Little tweaks in inventory management can have a big impact on efficiency and cash flow.

Accounts Receivable Days (Days Sales Outstanding)

What it is: Accounts Receivable (AR) Days, or Days Sales Outstanding (DSO), measures the average number of days it takes to collect payment from your customers. If you sell on credit (invoice clients who pay later), this metric is vital. It essentially tracks your collections efficiency.

Formula:

Days Sales Outstanding (DSO) = (Average Accounts Receivable / Total Credit Sales) × 365

What it means: A lower DSO is better – it means you collect quickly. A higher DSO means customers are taking longer to pay. If your standard credit term is, say, Net 30 (payment due in 30 days), but your DSO is 61 days, many customers are paying late. That’s effectively like giving them extended credit and it hurts your cash flow. Small businesses, especially those serving other businesses (B2B), often struggle with slow-paying clients. For instance, a catering company that caters corporate events might invoice and not get paid for 60-90 days if the corporation is slow processing accounts payable. Monitoring DSO will quantify that impact.

Why it matters: DSO tells you how well you’re managing the cash conversion cycle – the time between making a sale and actually getting the cash. If DSO is too high, you’re essentially giving an interest-free loan to your customers, and meanwhile you might be borrowing or using your cash to fund operations. This can lead to liquidity issues. It’s especially critical for minority and underserved entrepreneurs who might not have a big cash cushion; getting paid promptly can make or break monthly finances.

Actionable insight: If your DSO is high or climbing, take action on your accounts receivable:

  • Invoice promptly – send invoices as soon as work is delivered or goods are shipped.
  • Clear payment terms – ensure your invoices state when payment is due and how (e.g., 30 days, with accepted payment methods).
  • Follow up – implement a reminder system. A polite reminder a week before and on the due date can prompt timely payment.
  • Incentives/Penalties – consider offering a small discount for early payment (e.g., 2% off if paid in 10 days) or charging a late fee for significantly overdue invoices (if appropriate and communicated upfront).
  • Multiple payment options – make it easy for customers to pay (online payments, credit card, etc., even if there’s a small fee – it might be worth it to get cash in faster).
  • Know your customers – sometimes, a particular client may always be late. You might decide to continue working with them but plan your cash needs accordingly, or require a deposit/upfront amount.

By bringing down your DSO, you accelerate your cash inflows, which improves liquidity without needing new sales – it’s like finding money stuck in the couch cushions of your balance sheet.

As a positive example: A Black-owned creative agency had a DSO of around 75 days, since many clients were large companies with slow payment processes. This was putting strain on paying the agency’s bills. Through coaching, the owner implemented a 50% upfront policy for new contracts and started accepting credit card payments (with fees built into pricing). The result? DSO dropped to under 45 days within a few months. Cash flow improved and stress went down. All because they focused on operational efficiency in collections.

Accounts Payable Days (Days Payable Outstanding)

What it is: Accounts Payable (AP) Days, or Days Payable Outstanding (DPO), measures the average number of days your business takes to pay its own bills to suppliers. It’s basically the flip side of DSO – how long you take to pay others.

Days Payable Outstanding (DPO) = (Average Accounts Payable / Cost of Goods Sold) × 365

What it means: A higher DPO means you take longer to pay suppliers (which can conserve your cash in the short term), while a lower DPO means you pay faster. Efficiently managing DPO is a bit of a balancing act: you want to hold onto cash as long as possible, but not at the expense of damaging supplier relationships or missing out on early payment discounts. For example, paying in 60 days instead of 30 might help your cash flow, but some suppliers might start nagging or even halt deliveries if that’s beyond agreed terms. Alternatively, some suppliers offer a discount (like 2/10 Net 30: 2% off if paid in 10 days) – if you can afford it, taking that deal essentially earns you a 2% savings, which is significant if annualized.

Why it matters: DPO is part of the cash conversion cycle as well – in fact, one way to improve cash flow is to shorten DSO (collect faster) and lengthen DPO (pay slower), within reason. By monitoring AP days, you can gauge if you’re paying too quickly (maybe being too generous, hurting your own liquidity) or if you’re stretching payables too long (which might harm credit or relationships). Many small businesses instinctively pay bills as soon as they come in when they have cash – which is good ethics, but not always necessary from a cash management perspective. If your DPO is very low, you might actually want to slow down a bit (pay on due date rather than immediately) to keep cash longer.

Actionable insight: Review your payment terms with suppliers and your payment practices:

  • Know the terms: If it’s Net 30, there’s no penalty for using the full 30 days. Don’t feel obligated to pay in 5 days if 30 is allowed – use that float for your operations.
  • Prioritize payments: Of course, always pay on time to avoid late fees or interest. If cash is tight, prioritize payroll, taxes, and critical suppliers (ones who could halt your business if not paid). For less critical or more flexible vendors, you might gently stretch to the maximum terms.
  • Communicate: If you need more time, sometimes asking suppliers for Net 45 or Net 60 terms can help, especially if you’ve built trust. Many are willing to accommodate if you communicate before due dates pass.
  • Take discounts when possible: If you have solid liquidity, taking a 1-2% early pay discount is often a great return on your money. Analyze if the discount is worth more than keeping the cash in hand.
  • Monitor DPO vs DSO: Ideally, try to collect faster than you pay. If your DSO (collection time) is 45 days and DPO (payment time) is 30 days, you’re in a 15-day cash gap – you might need a line of credit to cover that. If you can flip it (collect in 30, pay in 45), you have a 15-day cushion where you’re using supplier credit to run your business. That’s essentially free financing.

By managing these, you’re optimizing your operating cycle – the journey of cash out (to suppliers) -> inventory -> sales -> cash in. A shorter, more efficient cycle means more agility and less need to borrow.

Total Asset Turnover

What it is: This metric measures how efficiently your business uses all its assets to generate revenue. It’s defined as Sales divided by Total Assets. In essence, it answers: How many dollars of sales do we generate for each dollar of assets?

Total Asset Turnover = Revenue / Total Assets

What it means: A higher asset turnover indicates more efficient use of assets. This can vary widely by industry. A consulting firm with few assets might have a very high asset turnover (because the main “asset” is people’s knowledge, not on the balance sheet), whereas a manufacturing company with heavy equipment might have a lower turnover. Still, improving your asset turnover typically means you’re squeezing more sales out of the resources you have.

Why it matters: For small businesses, especially ones that have invested in equipment or property, asset turnover helps you gauge if those assets are pulling their weight. Let’s say you bought an expensive piece of machinery. You’d want to see sales go up significantly thanks to that machine; if not, your asset turnover (and ROA we discussed earlier) will drop, indicating inefficiency. Lenders might indirectly consider this too – if you have taken equipment loans, they want to see that those assets are generating revenue. AOF, being a mission-focused lender, often provides equipment financing, but also guidance on how to use that equipment effectively. Tracking asset turnover before and after such a purchase tells you if the investment was worthwhile.

Actionable insight: Use asset turnover as a big-picture efficiency check. If it’s increasing, great – you’re likely growing sales without proportional asset growth (meaning you’re scaling efficiently). If it’s decreasing, ask why:

  • Did you invest in assets that haven’t started contributing to sales yet (e.g., opened a second location that’s not fully ramped up)? If so, you might expect turnover to improve soon – if not, you might have excess capacity.
  • Are there assets you’re not utilizing fully? For example, a food truck (asset) that only goes out 3 days a week – could it be used 5 days to generate more revenue? If not, maybe you have more truck than you need.
  • It could also drop if sales slowed down while assets stayed same – pointing back to needing to boost marketing/sales.

Combine this with other metrics: a falling asset turnover with a rising profit margin might be fine (you invested in quality, you sell less volume but at higher margin). But a falling asset turnover with falling margins is double trouble – assets are underutilized and each sale is less profitable.

Operating Expense Ratio (bonus metric): Another efficiency metric to mention is Operating Expense Ratio (OER) – operating expenses divided by revenue. If your OER is, say, 60%, that means 60% of your revenue goes to overhead and operating costs (excluding COGS). A lower OER over time means you’re running the business more efficiently (more of each dollar is kept as profit). This can be improved by either increasing sales without a big increase in expenses (scaling up) or by cutting unnecessary expenses. It’s essentially the complement of operating profit margin we discussed earlier (since Operating Margin % = 100% – OER% if we define OER to include all non-COGS expenses).

Summing up Operating Efficiency: Efficiency metrics help you fine-tune the engine of your business. They are particularly useful to identify bottlenecks or areas of waste. For a lot of small businesses, improving efficiency can free up cash and boost profits without needing new customers. 

Remember, small improvements add up. Reducing your average receivable by 10 days or increasing inventory turnover from 4x to 5x might quietly put a few extra thousand dollars in your bank account – money that can be used for marketing, hiring, or expanding. That’s why tracking these metrics matters. And you don’t have to do it alone – leveraging AOF’s coaching or Resource Center can give you tips and tools to improve your operating efficiency step by step.

Additional Financial Metrics to Track: Going Beyond the Basics

We’ve covered the core four categories, but depending on your business and goals, there are other key performance indicators (KPIs) that can provide valuable insight into your business’s health. Here are a few additional metrics and considerations:

Break-Even Point

What it is: The break-even point is the level of sales at which total revenues equal total costs. In other words, it’s when you’re not losing money but not making a profit either – you’ve “broken even.” Knowing your break-even helps you set targets and make decisions like pricing and cost management.

Break-Even Sales = Fixed Costs / (Price – Variable Cost per Unit)

Why it matters: Break-even gives you a concrete goal and peace of mind. If, for instance, you know your break-even is about $8,000 a month, and you’re currently selling $10,000, you know you have a buffer of profit. If you’re only selling $6,000, you know you need to increase sales or cut costs, or you’re operating at a loss. It’s particularly useful for planning and stress-testing your business. When considering a new expense (say hiring an employee with $3,000/month salary), you can recalculate break-even to see how much more sales you’d need to justify it. This helps in decision-making.

Actionable insight: Calculate your break-even periodically, especially when costs change or you’re planning for growth. For startups, doing a break-even analysis is crucial before launch – it tells you roughly how much you need to sell to survive. For existing businesses, it helps in setting sales targets and pricing. If your break-even seems too high (e.g., “I need to sell 200 cups of coffee a day just to break even – that seems unrealistic”), that’s a sign to either reduce fixed costs or increase margins (raise prices or reduce variable costs). Many business owners use break-even as a motivational target: “Once I hit break-even by mid-month, I know the rest of the month is profit.” It can also guide your promotional strategies – e.g., if sales are tracking low mid-month, you might run a special to ensure you at least hit break-even by month-end.

Growth Metrics (Revenue Growth Rate)

What it is: Growth metrics track how your business is expanding (or contracting) over time. The simplest is Revenue Growth Rate – the percentage increase (or decrease) in sales from one period to the next. You can also track profit growth rate similarly.

Revenue Growth % = ((This period’s revenue – Last period’s revenue) / Last period’s revenue) × 100%

Why it matters: Growth is an important indicator of business momentum and market traction. A healthy, sustainable growth rate depends on your industry and capacity. Even a modest growth of 5-10% per year can be great for a stable small business, especially if you’re already profitable. Rapid growth (like doubling sales) is exciting but can strain your resources (more inventory, more staff needed, etc.). Tracking growth helps you plan: if you’re growing, do you need more financing to expand? If growth is flat or negative, what strategies can boost sales (new marketing, product lines, etc.)?

Actionable insight: Calculate your growth rate year-over-year and also month-over-month or quarter-over-quarter to spot trends. If you see growth decelerating (slowing down), investigate causes – maybe market saturation or increased competition. If you see an uptick, analyze what led to it (seasonality, a successful promotion, etc.) so you can replicate it. Use growth metrics to set realistic goals: for instance, “We aim to grow revenue by 15% next year.” Then break that down – that might mean, say, acquiring 50 new customers or launching a new service line. Growth doesn’t happen by itself; linking the financial goal to concrete actions is key.

Also, keep an eye on cost growth relative to revenue growth. If your revenues grew 20% but your expenses grew 30%, your profits might shrink – unsustainable in the long run. Ideally, you want revenue growing faster than expenses, leading to widening profit margins as you scale. That’s something to strive for and celebrate when it happens.

Customer Acquisition Cost (CAC) and Lifetime Value (LTV)

For those engaged in marketing and customer analytics, especially in e-commerce or subscription models:

  • CAC is the average cost to acquire a new customer (marketing spend divided by number of new customers acquired in that period).
  • Customer Lifetime Value is the total revenue you expect to earn from a typical customer over their time with you.

Why mention these? Because they are financial metrics from a marketing perspective – they help ensure your marketing is yielding profitable customers. The goal is to have LTV significantly higher than CAC. For example, if you spend $50 in ads to acquire a customer (CAC) and that customer on average gives you $200 in profit over a couple of years (LTV), that’s a healthy return. If those numbers are flipped (CAC $200, LTV $50), you’re losing money on each customer – a big problem.

These metrics might be more relevant for scalable startups or those who do a lot of paid marketing. But even a local business can benefit from thinking this way: “If a customer’s average purchase is $20 and they visit 5 times a year for 3 years, their LTV is $300. So if a local ad costs me $500 and brings in 5 new customers ($100 CAC each for, say, $300 LTV each), that ad spend yields $1,500 LTV total from those customers. That’s a profitable marketing investment.” Such thinking ensures you’re spending money to make money, wisely.

Personal Credit Score and Business Credit Profile

This isn’t a metric on your financial statements, but it’s worth tracking your credit health. Many small business owners, especially startups, rely on personal credit for business financing. Regularly check your personal credit score and take steps to improve it (timely payments, low credit utilization) because it can impact your ability to secure loans on good terms. Also, as your business grows, establish a business credit profile: get a DUNS number, perhaps a business credit card or trade lines with suppliers. A strong credit profile can open doors to higher financing if needed, and at better rates.

Accion Opportunity Fund and other CDFIs often work with entrepreneurs with less-than-perfect credit (AOF looks beyond just the score​), but improving your credit is still beneficial and an actionable goal. It might not directly reflect in profit or cash flow, but it’s part of the holistic financial health of your enterprise.

Summing up Additional Metrics: Every business is unique, and you may find certain metrics more critical than others. The key is to identify the numbers that drive your success. Use them as a dashboard to steer your company. And remember – metrics work best when you act on them. They’re not just numbers to report; they’re insights to respond to.

If this feels overwhelming, start with just a few that matter most now (say, net profit margin, current ratio, and break-even). You can gradually add more as you get comfortable. The goal is to turn raw data into decisions: if a metric moves in the wrong direction, it should trigger you to ask “Why?” and then “What can I do about it?”

At Accion Opportunity Fund’s Resource Center, you’ll find tools and templates (like break-even calculators and cash flow worksheets) that can simplify this for you. Financial literacy is a journey, and you’re not alone on it.

Next Steps: Improving Your Financial Health with Accion Opportunity Fund

Understanding these metrics is the first step. The next step is using them to make informed decisions and improvements. This is where Accion Opportunity Fund is committed to being more than just a lender – we’re a partner in helping you thrive. Depending on where you are in your business journey, here are tailored next steps and how AOF’s services and resources can support you:

For Startups and New Businesses: Coaching and Education

If you’re in the early stages – maybe still figuring out your business model or just launched – it’s the perfect time to build good financial habits. Startups often operate on thin margins and tight budgets, so tracking metrics like break-even and burn rate can literally be the difference between turning your dream into a sustainable business or running out of steam.

What you can do: Focus on learning and getting your foundation right. Develop a basic bookkeeping routine (monthly review of profit/loss and cash flow). Set simple targets, like “I need $X sales to break even this month” or “Keep costs under $Y.” Use the metrics in this guide as a checklist and don’t hesitate to ask questions.

How AOF helps: Accion Opportunity Fund offers free business coaching and personalized advising to entrepreneurs just like you. You can connect with a business advisor who will work one-on-one to help interpret your numbers and make a plan. Sometimes just talking through your finances with an expert can provide huge clarity and confidence. As one AOF client put it, “Accion Opportunity Fund has more options and more flexibility than most loan companies.”​ That flexibility includes meeting you where you are – even if you’re not loan-ready, we can help you get there.

We also provide a wealth of educational content. Check out AOF’s Business Resource Center for articles, how-to guides, and interactive courses on topics like budgeting, setting up bookkeeping, and understanding small business finances​. These resources are designed for busy entrepreneurs and are available in both English and Spanish. For example, you might find templates for cash flow tracking or a webinar on managing credit – all free on our website. As a startup founder, arming yourself with knowledge is one of the best investments you can make.

Call to action: Ready to level up your financial skills? Sign up for a free coaching session with an AOF business advisor or explore our online business courses. Even if you’re just brainstorming or in the early hustle, we’re here to support your journey from day one.

For Growing Businesses: Affordable Loans to Fuel Your Next Stage

If you have an established business (perhaps 1-2 years or more in operation) and you’re tracking these metrics, you might identify areas where additional capital could make a big difference. Maybe your strong sales growth is straining your cash flow (liquidity issue), or you see an opportunity to expand (open a new location, buy a delivery van) but need funding to do it. This is where many businesses consider loans. However, choosing the right lender is crucial – the wrong financing (too expensive, too inflexible) can hurt your financial health, while the right financing can boost it.

Your considerations: Look at metrics like your Debt Service Coverage and forecast how a new loan payment would fit in. You want a loan that you can comfortably pay (and ideally, one that helps increase your profits so those payments are even easier over time). Also consider how fast you need the money and what you need it for – is it short-term working capital to buy inventory, or a medium-term loan for equipment?

Why AOF is different (and better): Accion Opportunity Fund is not your typical lender. We’re a nonprofit Community Development Financial Institution, which means our mission is to empower business owners, not to maximize our profit from a loan. We reinvest loan repayments into helping more entrepreneurs, particularly those traditionally overlooked by banks​. 

Here’s what that means for you:

  • Fair, Transparent Terms: Our interest rates start as low as 8.49%​, and we have no prepayment penalties. Unlike some online lenders that quietly charge 40-50% APR or lock you in with fees​, AOF’s rates are comparable to bank loans at the low end and we encourage you to pay off early if you can (it saves you interest!).
  • Flexible Loan Amounts & Uses: We offer loans from $5,000 up to $250,000, so whether you need a microloan for a small purchase or a larger amount to scale, we have you covered​. You can use the funds for a wide range of purposes – working capital, hiring staff, buying equipment, refinancing higher-cost debt, you name it.
  • Personalized Support: When you work with AOF, you’re not just an account number. You get a dedicated loan advisor to guide you through the process​. We take time to understand your business holistically. Remember how we talked about lenders looking at DSCR and credit scores? Well, AOF “does not judge by credit score alone” and looks at factors like your business plan, your experience, and your character​. We listen to your story – something many automated online lenders (like Kapitus or Funding Circle) won’t do. This means we often say “yes” when others say “no” because we see potential beyond the numbers.
  • Compared to Other Lenders: It’s important to evaluate options. Traditional banks have low rates but often hard-to-meet requirements and slow processes. Online fintech lenders (e.g., Kapitus, Funding Circle, LendingTree’s network) might boast fast approvals, but many charge high interest or require strong credit. In fact, Bloomberg reported that one popular online lender’s average APR was 54% – imagine the strain that puts on a business’s solvency. Those lenders also won’t provide coaching or flexibility if you hit a snag. 
  • Responsible Lending: We succeed when you succeed. We’ll never push you into a loan that you can’t handle. Our advisors often help clients determine an appropriate loan size. If we calculate that a slightly smaller loan makes more sense for your current cash flow, we’ll discuss that – we want you to maintain a healthy Debt-to-Equity and DSCR after taking our loan, not drown in debt. This is a key difference with AOF – we’re a partner, not a predator. 

Call to action: If you think funding might be the catalyst to improve your metrics (be it purchasing inventory to boost sales or refinancing high-interest debt to improve solvency), check out AOF’s loan offerings. You can apply for a small business loan online in minutes with no impact to your credit score for checking offers​. Our application is simple, and our team will walk you through every step. Whether you need $5K to bridge a short-term gap or $100K to open that second location, let’s talk. We’ve helped thousands of entrepreneurs access over $1 billion in capital on fair terms, and we’re ready to help you​.

Remember, the right loan used wisely can improve all your key metrics – profitability (by enabling more sales), liquidity (by providing working cash), solvency (by consolidating expensive debts), and efficiency (by funding better equipment or systems). Let’s work together to make sure any financing you take strengthens your business’s health.

For All Businesses: Leverage AOF’s Resource Center and Community

No matter your stage – just starting, growing, or even well-established – running a business can be isolating. But you are not alone. There’s a whole community of entrepreneurs and resources available to keep you informed, inspired, and supported.

Accion Opportunity Fund’s Resource Center is a goldmine for small business owners. It’s regularly updated with articles, videos, and success stories. Topics range from financial literacy (like many of the metrics we discussed) to marketing tips, legal advice, and leadership. If you enjoyed this deep dive into financial metrics, you’ll find our library of content to be an ongoing guide.

Moreover, AOF frequently hosts events and webinars (often virtually) where you can learn and ask questions in real time. Keep an eye on our Events page for upcoming workshops. Subjects might include “Maximizing Your Social Media ROI” or “Tax Prep for Small Businesses” or even panels featuring successful AOF clients sharing their journeys. Hearing the stories of others can be incredibly motivating. You’ll realize many have walked the path before – entrepreneurs like you have faced cash flow crunches, struggled with pricing, pivoted during COVID – and came out stronger. Their insights can become your shortcuts.