5 Financial KPIs Every Growing Business Should Track

Turnover is climbing, the order book looks healthier than it has in years, and yet the bank balance tells a different story: cash feels tighter every month, not easier. It's one of the most common patterns we see among our growing clients, and one of the most disorienting for the owner living through it. Revenue goes up. Profit, somehow, goes the other way.

Before you make any drastic business decisions, it’s important to understand where the money is going. That’s why your business should always track progress on 5 key financial KPIs. Together, these metrics tend to flag a problem weeks or months before the bank balance confirms it.

1. Gross profit percentage

Gross profit percentage, revenue minus the direct cost of delivering it, divided by revenue, is the first dial we check because it tells you whether the core of the business is still working.Businesses in certain sectors will sit in wildly different levels, so the number only means something against your own trend over time, not against a generic industry average.

What catches growing businesses out is that gross profit percentage can hold steady, or even improve, while the business is quietly becoming less profitable underneath. New staff, new premises and new overheads all sit below the gross profit line, which is exactly why this KPI needs a partner further down the page.

2. Wages as a percentage of turnover

This is the one we watch most closely with clients who are scaling, because it moves faster than owners expect and it's rarely on their radar until it's already a problem. As a business grows, headcount tends to grow ahead of revenue: you hire the account manager before the accounts justify it, because you need the capacity to win the work that will justify it later. That's a reasonable bet. It's also exactly how wage costs quietly outpace turnover.

Fathom's benchmarking research puts a healthy range at roughly 25 to 35 percent of turnover across most industries (fathomhq.com/kpi-glossary/staff-cost-as-percentage-of-turnover), with anything consistently above that worth investigating rather than absorbing. The number climbs for good reasons too often, though: a pay review here, a recruitment fee there, National Insurance changes nobody budgeted for. These changes show up as a ratio that's crept from 28 percent to 38 percent over eighteen months without anyone noticing until margin has already gone.

Wages consistently above roughly a third of turnover is the clearest early sign that growth is being funded by shrinking margin rather than genuine efficiency.

3. Net profit margin

If gross profit percentage tells you whether the work itself is priced correctly, net profit margin tells you whether the business as a whole is. It's the number that catches everything gross profit misses: rent, insurance, finance costs, the wages just discussed, all of it.

It's also the number that shows how thin margins can get even in sectors where turnover looks impressive. Average profit margins across the UK's top 100 construction companies fell to 1.7 percent in 2024, down from 2.7 percent the year before, despite many of those firms reporting record order books. A business can be busier than ever and still be one bad debt away from a loss-making year.

4. Debtor days

Debtor days measure how long, on average, it takes customers to pay once you've invoiced them. It matters because profit on paper and cash in the bank are two different things, and a growing business can be profitable and still run out of money if the gap between the two keeps widening.

This isn't a minor administrative irritation. Government-commissioned research from the Small Business Commissioner found that late payments cost the UK economy around £11 billion a year, and that roughly 14,000 businesses close annually as a direct result, the equivalent of 38 every day.

5. Cash reserves, and how hard they're working

The final dial isn't a ratio so much as a habit: knowing how many weeks or months of overheads you could cover if income stopped tomorrow, and making sure whatever buffer you're holding is doing something useful. UK small businesses are collectively sitting on an estimated £273 billion in cash reserves, and over half of that, around £149 billion, is earning no interest at all. Building a cash buffer is sound instinct. Leaving it idle in the wrong account is a quiet, ongoing cost that rarely makes it onto anyone's KPI list, even though it should.

Need Help Working Out the Figures? Linggard and Thomas Can Help!

None of these five numbers is difficult to calculate. The value is in watching them together, monthly, rather than reacting to whichever one happens to cause a problem first. A business can look perfectly healthy on any single measure and still be drifting, which is precisely why we build them into every set of management accounts we prepare for growing clients.

If you're not seeing these figures on a regular basis, or you're seeing them but aren't sure what they're telling you, get in touch with the team at Linggard & Thomas. We'll help you set up reporting that flags the problem while there's still time to do something about it.