4 KPIs Every Small Business Should Track 

Your Numbers Tell a Story... Are You Listening?

My LinkedIn feed has been full of dashboards and KPI discussions lately. So much so that even as an accountant it can start to feel overwhelming. As a small business owner? It can be downright confusing to know what you should actually be tracking. 

There are so many numbers and reports available it’s easy to get lost in the details. So when it comes time to start monitoring KPIs there are two rules to follow. 

1. K.I.S.S. 

   1. At my house that means keep it SUPER simple. If you track too many KPIs you will definitely get overloaded but you might also start ignoring them entirely and the exercise becomes entirely pointless.  

2. Why?

   1.  Why are you tracking it and what are you going to do about it? If there is not a clear answer, it’s probably not worth tracking. 

The goal in tracking KPIs is to focus on key metrics that give you insights into the health and growth of your business. In this blog I’ve narrowed it down to 4 key metrics that are simple enough not to overwhelm you but important enough to help you grow. 

KPI# 1 Margins (Gross Profit & Operating Profit Margin)

Your margins show you whether or not you are profitable. This metric is actually two in one: Gross Profit Margin and Operating Profit Margin. 

Gross profit margin tells you how much revenue remains after covering the cost of goods sold, while operating profit margin highlights profitability after expenses. Tracking this as a 12-month trend smooths out seasonality and can help highlight issues before they become bigger problems.

How to Calculate:

• Average the numbers over the last 12 months to smooth out seasonal highs and lows.

• Use your P&L report to calculate:

  • Gross Profit Margin: (Revenue – COGS) ÷ Revenue x 100

  • Operating Profit Margin: Operating Income ÷ Revenue x 100

The Why?

If your gross profit margin is less than 50% or is slowly trending downward, then it might be time to adjust the pricing or figure out why the cost of goods sold is increasing. 

For the Operating Profit Margin, this is your take home as the business owner, target here is 20%.

KPI# 2 Days Sales Outstanding (DSO)

How long does it take for you to get paid? If you’re not getting paid when you invoice, or you’re invoicing irregularly, then tracking Days Sales Outstanding (DSO) becomes critical. DSO shows the average time between invoicing a client and receiving payment. This KPI is only useful if you are invoicing your clients in a timely manner. If you only invoice once a month, or whenever you remember, this metric won’t be useful. However if you have a good, consistent, and timely invoicing cadence set up, then this metric is  especially important if you want to do accurate forecasting.

How to Calculate:

• Formula: (Accounts Receivable ÷ Total Credit Sales) x Number of Days

• Calculate for the last 12 months and average it to get a meaningful view.

The Why?

If your DSO is trending upward, it’s time to tighten payment terms or set up payment reminders. Can you get paid upfront?

KPI# 3 Cash Flow from Operations

Cash flow from operations shows how much cash your business generates from core operations. Even profitable companies can struggle if the cash flow isn’t flowing. I think it goes without saying but your cash flow from operations should be positive. Granted there may be months when it’s not but overall the trend should be positive cash flow from operations. And if it's not, then you know you have a problem and can investigate further. 

How to Calculate:

• Pull the cash flow from operations for the last 12 months from your accounting system and calculate the average.

The Why?

Cash flow is your early warning system. If your P&L is showing a profit consistently but the cash flow from operations is not, then there is a problem that needs to be found. Monitoring it regularly can prevent surprises and keep your business healthy.

KPI# 4 Operational KPI (MRR, Clients, or Revenue Metrics)

Your operational KPI should give context to the financial KPIs above. If revenue is down, your operational metric should tell you why. While financial KPIs are critical, tracking one operational metric helps you understand the drivers of your business. Examples include:

• Monthly Recurring Revenue (MRR)

• Number of clients or accounts

• Average client revenue

• Number of client meetings

• Close Rate

• Lead conversion

Whichever operational KPI you choose, track it consistently.

The Why?

Pick one that aligns with your business goal right now. Track it monthly, and ask: if this number drops, what will I do?

Final Thoughts

Tracking KPIs doesn’t have to be overwhelming. Focus on a few meaningful metrics, understand why they matter, and take action based on the trends you see. By monitoring these KPIs, you’ll have the clarity to make smarter decisions, plan for growth, and stay confident in your business strategy.

But here is the tricky part of KPIs; unless you have a good bookkeeping foundation and consistent accounting processes in place, the numbers won’t make sense. So before you start tracking any KPIs make sure you have the right foundation in place. 

Need help getting your bookkeeping foundation set up or determining which KPIs to track? At Rueckert Accounting, we help small business owners streamline their accounting operations, track the right metrics, and use them to make better decisions every day.

👉 Schedule a consultation today and start listening to your numbers.