Running a business without tracking the right numbers is like building a house without checking your foundations. You might have a great structure on the surface, but if you’re not keeping an eye on what’s holding it up, cracks will start to appear.
The good news is that when you track the right financial measures, you’ll have a solid foundation to build on. You’ll spot potential risks early, make better decisions, and be able to scale with confidence.
Here are the five key numbers that will help you strengthen your business and ensure it’s built for long-term success.
Why gross margin is like your profit foundation
Your gross margin is one of the most important indicators of financial health. It shows you how much of your revenue is left after covering the direct costs of making or delivering your product or service.
Here’s a gross margin calculation example to put it into perspective:
Gross margin (%) = (Revenue – Cost of Sales) ÷ Revenue × 100
If your revenue is £500,000 and your cost of sales is £300,000, your gross margin is:
(500,000 – 300,000) ÷ 500,000 × 100 = 40%
That means 40% of your revenue is available to cover overheads, pay staff, and generate profit.
Think of gross margin as the foundation of a strong building. If the foundation is weak, the whole structure is at risk. If your margin starts to drop, it’s like cracks appearing in your foundation—you need to act quickly by adjusting pricing, cutting unnecessary costs, or improving efficiency before bigger problems develop.
Operating profit vs net profit: knowing the difference between revenue and real returns
A lot of business owners confuse operating profit with net profit, but they tell two very different stories.
- Operating profit is how much your business is making after covering direct costs and overheads, but before tax and interest.
- Net profit is what’s left after everything—including tax, interest, and loan repayments—has been deducted.
If gross margin is your foundation, operating profit is the strength of your structure. It shows how well your business is actually performing.
Knowing the difference between operating profit vs net profit helps you see the real financial health of your business. If your operating profit is low, it’s a warning sign that your costs are rising faster than your revenue.
By tracking this number regularly, you’ll be able to adjust your business strategy before issues impact your bottom line.
Measuring efficiency with operating profit per employee
Every business needs the right number of people in the right roles to operate effectively. One way to track efficiency is by measuring operating profit per full-time employee (FTE).
The formula is simple:
Operating profit ÷ number of full-time employees
If your operating profit is £200,000 and you have 10 full-time employees, your profit per employee is £20,000.
Think of this like the structural integrity of your building. If you’ve got too much weight in one area (too many staff without enough revenue), you risk putting pressure on your finances. If your structure is too thin (not enough people to support demand), you could be missing opportunities or overloading your team.
By tracking operating profit per employee, you’ll know if your business is overstaffed, understaffed, or perfectly balanced. If you’ve recently invested in automation or process improvements, this number should increase over time. If it doesn’t, it’s a sign that something isn’t working as expected.
Why you need to track overheads as a percentage of turnover
Every business has overheads, but keeping them in proportion to revenue is key. That’s why tracking overheads as a percentage of turnover is so important.
Here’s how to calculate it:
Overheads ÷ turnover × 100
For example, if your revenue is £100,000 and your overheads are £30,000, your overheads as a percentage of turnover is 30%.
Think of this like managing construction costs in a development project. If costs start rising without a matching increase in revenue, the project becomes unsustainable.
- If overheads as a percentage of turnover start creeping up, it’s time to review expenses and cut unnecessary costs.
- If revenue is rising while overheads stay stable, it means you’re running an efficient operation and growing sustainably.
Tracking this number will help you avoid overspending and ensure your business stays financially healthy.
Why cash flow is just as important as profit
Profit is great, but cash is what keeps your business running.
Net free cash flow tells you how much money is actually left after covering expenses, paying suppliers, and reinvesting in growth.
A lot of business owners assume that if their business is profitable, they must have cash in the bank. But that’s not always the case. If too much money is tied up in stock, unpaid invoices, or loan repayments, you could be profitable on paper but still struggling to pay bills.
Think of net free cash flow like the working capital of a construction site. If all your funds are tied up in materials, but you don’t have cash to pay workers, the whole project slows down.
By tracking net free cash flow, you’ll always know if your business has enough money to pay yourself, invest in growth, and stay financially stable.
Track these numbers and build a stronger business
When you track these key numbers, decision-making becomes clearer, risks become easier to spot, and your business runs more smoothly.
By reviewing them every month, you’ll gain confidence, control, and a deeper understanding of your financial position. You’ll know exactly when to push for growth, when to invest, and when to make strategic adjustments.
If you haven’t been tracking these numbers closely, now is the perfect time to start.
As a business coach, I specialise in helping entrepreneurs achieve sustainable growth and success. Visit my homepage and explore the Mind Your Own Business section for practical advice and tools to support your journey.
And before you go, if you found this helpful, subscribe to my YouTube channel. It helps me reach more business owners with practical strategies that make running a business simpler, smarter, and more profitable. Your support helps me share insights with more business owners looking to grow with confidence.
