Why these five numbers matter
You don’t need dozens of reports every month. Track five clear numbers and you’ll spot problems early, make better cash decisions, and know where to focus. These are straightforward to find in your accounting software, POS, or bank statements.
1) Net cash change (cash in minus cash out)
What it is: The difference between money coming into your business and money leaving it during the month.
How to get it: Start with ending bank balance this month minus ending balance last month. Or sum deposits minus withdrawals in your accounting system.
Why it matters: It shows if you’re building cash or spending it down.
Simple decision rule:
- If positive: good. Keep an eye on seasonality—ask “is this normal for this month?”
- If negative: find why. Cut discretionary spending, delay nonessential purchases, or push for faster collections.
Example: Last month ending balance $18,000; this month $14,500 → net cash change = -$3,500. Action: review big withdrawals (loan payment? equipment?) and decide if they’re one-time or recurring.
2) Gross profit margin
What it is: Percentage of sales left after paying direct costs to make or buy what you sell (COGS).
Formula: (Sales − COGS) ÷ Sales × 100
Why it matters: Shows whether pricing and product costs are healthy.
Simple decision rule:
- If margin drops 3–5 points month-over-month, investigate pricing, supplier prices, or product mix.
Example: Sales $50,000, COGS $30,000 → Gross margin = (50,000−30,000)/50,000 = 40%. If last month was 45%, ask what changed—discounting, higher supplier costs, or lower-margin items selling more.
3) Burn runway (cash runway)
What it is: How many months you can keep operating using current cash and current monthly net cash burn.
Formula: Cash balance ÷ average monthly cash burn
Why it matters: Tells you how much time you have to fix problems or find funding.
Simple decision rule:
- Runway > 6 months: comfortable but don’t ignore trends.
- Runway 3–6 months: take action—trim costs, speed collections, or look for financing options.
- Runway < 3 months: urgent—prioritize highest-impact cash-saving moves and talk to lenders or investors now.
Example: Cash $24,000, average monthly burn $6,000 → runway = 4 months. Action: cut a $1,500 monthly discretionary expense to extend runway to 4.8 months, and accelerate invoicing.
4) Accounts receivable aging — % past due
What it is: Percentage of total invoices that are past their due date (30, 60, 90 days buckets).
Why it matters: High past-due amounts choke cash flow and signal collection problems.
Simple decision rule:
- If > 20% of receivables are past due: start a collections plan (reminder emails, phone calls, late fees, stop shipments).
- If > 40% past due: escalate—hold services, require deposits, or use a collection agency for large balances.
Checklist for month-end collections:
- Run AR aging report.
- Send reminder emails for 30–60 day invoices.
- Call for 60–90 day invoices.
- Set payment terms change for repeat late payers (e.g., require 50% upfront).
Example: Total AR $40,000; past due (30+ days) = $12,000 → 30%. Action: prioritize collection calls for top 5 overdue accounts and set new customer terms.
5) Customer acquisition cost (CAC) and payback (simplified)
What it is: How much you spend to get one new customer, and how long it takes that customer to pay back that cost through profit.
Simple CAC formula (monthly): Total marketing + sales expenses that month ÷ number of new customers that month.
Payback formula: CAC ÷ average gross profit per customer per month
Why it matters: Tells you if your growth spending is sustainable.
Simple decision rules:
- Payback ≤ 6 months: usually safe for many businesses.
- Payback 6–12 months: acceptable if growth is strategic and cash allows it.
- Payback > 12 months: risky—reduce acquisition spend or improve conversion/value per customer.
Example: Marketing + sales = $6,000 this month; 20 new customers → CAC = $300. Average gross profit per new customer per month = $75 → payback = 300 ÷ 75 = 4 months. Action: keep current spend or scale carefully.
Monthly checklist — what to run and where
Run these reports every month-end:
- Bank statement or cash summary → net cash change
- Profit & Loss → sales and COGS for gross margin
- Cash flow summary or simple burn calculation → runway
- Accounts receivable aging report → % past due
- Marketing & sales spend + new customer count → CAC and payback
Quick action guide: If a number trips an alarm
Net cash change is negative:
- Identify large outflows. Can any be delayed? Freeze hiring? Pause nonessential vendor contracts?
Gross margin falls:
- Raise prices where customers accept it by 3–5%. Negotiate with suppliers. Shift to higher-margin products.
Runway under 3 months:
- Cut low-value spend immediately. Talk to your bank for a line of credit. Prioritize cash-positive work.
AR past due > 20%:
- Call top debtors. Offer quick-pay discounts. Require deposits for future orders.
Payback > 12 months:
- Reduce acquisition spend, try cheaper channels, improve conversion, or increase average order value.
Two short templates to use right away
1) Collections email (subject: Invoice past due)
Hi [Name],
Our records show invoice #[#] for $[amount] is [days] days past due. Please pay by [date] or contact me to arrange payment. If you’ve already paid, thanks—please reply with confirmation.
2) Price increase note to customers (for small increases)
Hi [Name],
Starting [date] our price for [product/service] will increase from $X to $Y due to higher costs. Existing contracts/orders placed before [date] will keep current pricing. Thank you for understanding.
Wrap-up: keep it simple and repeat
Pick a consistent day each month to run these five checks. Track the numbers in one simple spreadsheet or use your accounting dashboard. That small habit will keep surprises rare and decisions fast.