The 10 KPIs most business owners should review every month are cash position and forecast, revenue against budget, gross profit margin, net profit margin, overheads as a percentage of revenue, staff costs as a percentage of revenue, debtor days, creditor days, customer concentration and tax set aside against what’s due. Together they show whether the business is profitable, whether it has the cash to stay that way, and where risk is building.
Most owners know their turnover and their bank balance. Fewer can say whether margins are holding, how long customers are taking to pay, or whether enough has been put aside for the next VAT bill. Those are the numbers that decide whether a good year on paper turns into a good year in the bank.
Why Review KPIs Every Month?
Annual accounts arrive long after the year they describe, and quarterly reviews can let a problem run for three months before anyone looks at it. A monthly review is frequent enough to catch a slipping margin or a slow payer early, and long enough for the figures to be complete once the month’s transactions are recorded and reconciled.
In practice, problems rarely arrive without warning. Margins begin to narrow, debtor days lengthen, staff costs rise ahead of revenue or tax reserves are quietly absorbed into working capital. The problem is often not that the information was unavailable, but that nobody reviewed it consistently enough to act.
A KPI is only useful if you compare it with something. The right KPI set and target range will vary by sector, business model and stage of growth. A construction company, professional practice and online retailer should not expect the same margins, working-capital cycle or staffing ratios.
For each measure below, look at the trend over recent months, the same month last year and your budget. A single figure on its own tells you very little.
The 10 KPIs to Review Every Month
1. Cash position and cash forecast
Start with the bank balance, then look forward. A rolling cash forecast, often covering the next 13 weeks, shows when money will come in and go out, including payroll, supplier runs and tax.
The question it answers: will we have enough cash to meet every commitment over the next three months, and if not, when does the gap appear? Do not treat the current bank balance as the KPI on its own. The more useful measure is the lowest forecast cash position, or funding headroom, during the forecast period.
2. Revenue against budget
Compare actual sales with what you planned for the month and the year to date. A shortfall early in the year is far easier to recover than one discovered in month eleven.
Watch for: a gap that widens month after month, which usually means the budget or the sales approach needs revisiting.
3. Gross profit margin
How to calculate: revenue minus direct costs, divided by revenue, multiplied by 100. Gross margin shows how much each pound of sales contributes before overheads. It often moves before profit does, because it reacts to supplier price rises, discounting and a change in the mix of work. A falling gross margin with rising sales is one of the clearest warning signs a business can have.
4. Net profit margin
How to calculate: net profit divided by revenue, multiplied by 100.
Net profit margin shows the proportion of revenue remaining after the business’s costs have been recognised. Reviewed monthly, it helps show whether growth is genuinely improving profitability or simply making the business busier.
5. Overheads as a percentage of revenue
Rent, software, insurance, professional fees and other fixed costs tend to creep up quietly. Expressing them as a percentage of revenue shows whether they’re growing faster than the business. If the percentage rises for several months in a row, it’s time to review what you’re paying for.
6. Staff costs as a percentage of revenue
For many businesses, people are the largest single cost. Include salaries, employer’s National Insurance and pension contributions, not just gross pay. Tracking this percentage helps you see whether recent hires are paying their way and whether you can afford the next one.
7. Debtor days
How to calculate: trade debtors divided by annual revenue (or annual revenue on credit), multiplied by 365. Debtor days show, on average, how long customers take to pay you. It matters: the government estimates that late payments cost the UK economy £11 billion a year and close 38 businesses every day. If your terms are 30 days and debtor days are drifting towards 50, cash is being tied up in other people’s businesses.
8. Creditor days
How to calculate: trade creditors divided by annual credit purchases, multiplied by 365. This is the other side of the same coin. Paying suppliers far faster than customers pay you squeezes cash. Paying far later than agreed can damage relationships and credit terms. The aim is a deliberate balance, not an accident.
9. Customer concentration
Work out what share of revenue comes from your largest customer and your top five. If one customer accounts for a large slice of sales, their decisions, payment habits or financial health become your risk. Seeing the figure each month keeps diversification on the agenda before a lost contract forces it. For businesses with irregular or project-based income, a rolling 12-month view is usually more meaningful than one month or quarter in isolation.
10. Tax set aside against what’s due
VAT and PAYE can create liabilities that build up before payment is due, while Corporation Tax becomes payable on taxable profits. These amounts may remain in the business bank account temporarily, but they should not be treated as freely available working capital.
VAT is usually due one calendar month and 7 days after the end of each VAT period, and most companies must pay Corporation Tax 9 months and 1 day after their accounting period ends.
Compare the amount reserved with the estimated liabilities building up. If the gap is growing, a future tax payment may create avoidable pressure on cash flow.
At a Glance: The 10 KPIs
KPI | How to work it out | What it tells you | Warning sign |
Cash position and forecast | Bank balance plus expected receipts and payments, often over 13 weeks | Whether you can meet every commitment | A forecast gap you can’t yet explain or fund |
Revenue against budget | Actual sales compared with planned sales | Whether you’re on track for the year | A gap that widens each month |
Gross profit margin | (Revenue minus direct costs) ÷ revenue x 100 | What each sale contributes | Falling margin while sales rise |
Net profit margin | Net profit ÷ revenue x 100 | Whether growth is profitable | Busier, but no more profit |
Overheads as % of revenue | Overheads ÷ revenue x 100 | Whether fixed costs are creeping | Several months of increases |
Staff costs as % of revenue | Total staff costs ÷ revenue x 100 | Whether hires are paying their way | Rising without matching revenue |
Debtor days | Trade debtors ÷ annual revenue (or credit sales) x 365 | How quickly customers pay | Well above your payment terms |
Creditor days | Trade creditors ÷ annual credit purchases x 365 | How quickly you pay suppliers | Far faster or slower than agreed |
Customer concentration | Largest customer, and top five, as % of revenue | How exposed you are to one client | One customer holding a large share |
Tax set aside | Funds reserved compared with VAT, PAYE and Corporation Tax due | Whether tax bills are covered | A growing shortfall |
Worked Example: What Debtor Days Can Tell You
Take a business with annual revenue of £900,000, 30-day payment terms and £120,000 owed by customers at the end of the month. That’s about 49 debtor days, so on average customers are paying almost three weeks late.
If tighter credit control brought that down to 35 days, the amount owed would fall to around £86,000.
If sales remained at the same level and the reduction were achieved through faster collection, the amount tied up in receivables could fall to around £86,000, potentially releasing almost £34,000 of cash.
Reviewed monthly, the drift from 30 to 49 days would have been visible long before it reached that point, and the conversation with slow payers would have started sooner.
Making KPIs Useful, Not Decorative
KPIs are only as reliable as the records underneath them. If bank reconciliations are weeks behind or sales invoices are missing, the report will look precise and still be wrong. Getting the monthly bookkeeping closed on time comes first.
Keep the list short at owner level. Ten well chosen measures that you actually act on beat forty that nobody reads. Give each one a clear owner and agree in advance what happens when a figure moves outside the range you’re comfortable with. The value of a KPI review is the decision it prompts, not the report itself.
How ATS Helps You Track the Numbers That Matter
ATS Accountants is an accountancy firm based in Rochdale, established in 2013, with a presence in Chadderton and Rainford. Through our management accounts service, our directors present your figures with insights and recommendations, so you get an explanation of what the numbers mean and what to do next, not just a set of reports.
Because our accounts, tax and advisory work is based on the same underlying financial records, your KPI reporting can remain aligned with your statutory accounts and tax planning.
As a Xero Silver Partner, we work directly in your cloud accounts, and if you need someone to own the forecast and challenge the big decisions, our virtual finance director service takes that a step further.
Want to know which KPIs matter most for your business? Book a free consultation or call us on 0161 818 4949.
Frequently Asked Questions
A KPI is a figure you’ve chosen to track because it shows whether the business is heading where you want it to. Revenue on its own is just a number. Revenue against budget, month by month, is a KPI because it tells you whether you’re on track and prompts action when you’re not.
At owner level, usually somewhere between five and ten. Fewer than that and warning signs get missed, while many more tends to bury the important figures. Individual teams can track more detailed measures underneath the headline set.
If cash is tight, yes. Most of these KPIs only make sense once the month has been closed, but cash can change quickly, so many businesses check the bank position and short term forecast every week and review the full set monthly.
Yes, most of them. Xero’s standard reports cover sales, profit, aged debtors and creditors and VAT, and those figures need only a little arranging to become KPIs. Forecasts and customer concentration usually need an extra report or spreadsheet, and as a Xero Silver Partner we can help set this up.
There’s no single good figure, because margins vary widely from one sector to another. A software company and a builders’ merchant will never look alike. The more useful test is your own trend, since a margin that slips month after month needs explaining whatever the industry average says.
The directors as a minimum, plus anyone responsible for acting on a specific figure, such as whoever chases debts or sets prices. Lenders and investors may also ask for regular KPIs as a condition of funding, so it helps to keep the report in a consistent format.
