Cash Flow & Efficiency KPIs to Keep Your Business Healthy

Wardlaw CPA
Sep 3
2 min read

Updated: Sep 4

Why Profit Alone Doesn’t Pay the Bills

You’ve heard it before: “Cash is king.” And it’s true — you can be profitable on paper and still be unable to pay rent, meet payroll, or fund growth. That’s why cash flow KPIs are just as important as profitability metrics. A quick reminder on what KPI’s are - (Key Performance Indicators) these are measurable metrics that track how your business is performing in critical areas like profitability, cash flow, efficiency, growth, and customer retention.

Cash flow KPIs track the actual movement of money in and out of your business, ensuring you have the liquidity to operate, invest, and grow.

Key Cash Flow KPI: Operating Cash Flow (OCF)

What It Measures: The cash your business generates from core operations, excluding financing or investing activities.
Why It Matters:
- OCF is your business’s real-time oxygen supply.
- Negative OCF can signal trouble — even if you’re “profitable” on paper.
- Reveals whether your operations are self-sustaining or dependent on external funding.
Example: You earned $30,000 in profit this month, but most customers haven’t paid yet and bills are due. If your OCF is negative $5,000, you need to improve collections or adjust spending.

Action Tip: Review your cash flow statement monthly. Look for patterns — do you run short right after a high-sales month? That may point to poor collections or rising costs.

Key Efficiency KPI: Operating Expense Ratio (OER)

What It Measures: The percentage of your revenue spent on day-to-day operations (rent, salaries, utilities, software, etc.).
Formula: Operating Expenses ÷ Total Revenue × 100
Why It Matters:
- A high OER means your overhead is eating into profit.
- A low OER suggests you’re controlling costs well.
Example: Revenue = $200,000; Operating Expenses = $130,000 ($130,000 ÷ $200,000) × 100 = 65% That means 65% of your revenue goes to keeping the lights on — leaving only 35% for profit and reinvestment.

Action Tip: Compare your OER over time. If it’s rising without revenue growth, review subscriptions, staffing, and fixed overhead.

Key Efficiency KPI: Revenue Per Employee (or Contractor)

What It Measures: Average revenue generated by each team member.
Formula: Total Revenue ÷ Number of Team Members
Why It Matters:
- Helps assess workforce productivity.
- Reveals if you’re overstaffed or underpricing services.
Example: Firm A: $500,000 revenue ÷ 2 contractors = $250,000 each Firm B: $500,000 revenue ÷ 6 contractors = $83,333 each Unless Firm B is preparing for growth, Firm A is more efficient.

Action Tip: Track this quarterly to see if productivity rises or falls after new hires.

How to Improve Cash Flow and Efficiency

Tighten Accounts Receivable – Shorten payment terms and follow up on overdue invoices.
Control Overhead Costs – Audit expenses regularly for waste.
Match Staffing to Demand – Hire or contract based on workload, not just anticipated growth.

Next in the Series

In Part 4: Growth & Customer KPIs That Drive Long-Term Success, we’ll explore the metrics that show whether your growth is sustainable and your customers are truly loyal.

Need help monitoring cash flow? Wardlaw CPA offers cash flow management and KPI tracking services so you can run your business with confidence. Schedule your consultation today.