When you’re looking to raise money for your business, showing investors that your company is financially healthy and has growth potential is important. One of the best ways to do this is by understanding and tracking a few key financial metrics.
These numbers help you explain how your business is doing and why it’s a good investment. Here are the five critical financial metrics every CEO should know before applying for funding.
Cash Flow – Is Your Business Making Enough Money to Run Smoothly?
Cash flow shows how much money is coming out of your business. It’s important because even if your company earns a lot, poor cash flow can cause big problems.
- Operating cash flow shows how much money your core business activities bring in.
- Free cash flow is left after you pay for necessary expenses like equipment or office rent.
If your cash flow is positive, your business can pay bills, invest in growth, and still have money left. This gives confidence to investors and lenders.
Revenue Growth – Is Your Business Growing Over Time?
Revenue growth is how much your sales increase over time. Investors want to see steady and substantial growth because it shows people are buying your product or service.
Your business is on the right path if your revenue keeps rising each quarter or year. Be sure to highlight this when talking to investors.
Profit Margins – Are You Making Enough Money from Sales?
Profit margin tells you how much profit you make compared to your sales. There are a few types:
- Gross profit margin shows a profit after paying for products or services sold.
- The operating profit margin shows a profit after subtracting operating costs like salaries and rent.
- Net profit margin shows the final profit after all costs, including taxes and interest.
If your margins are healthy, you’re running your business efficiently and making good money from your sales.
Debt-to-Equity Ratio – How Much Are You Borrowing?
The debt-to-equity ratio compares how much your business owes (debt) to how much is owned by shareholders (equity).
A low ratio means you’re not relying too much on borrowed money, which makes your business less risky. A high ratio can worry investors because you owe a lot and may have trouble paying it back.
Return on Equity (ROE) – Are You Using Investor Money Wisely?
ROE tells how well your business uses the money from investors to make a profit.
If your ROE is high, you’re smartly using the money and making good returns. This helps build trust and shows you know how to grow the business.
A good ROE makes your company more attractive to new investors because it shows their money will be used well.
Final Thoughts
Before asking for funding, ensure you understand and track these five money-related numbers.
They help you explain how your business is doing and show that you’re ready for growth.
If investors see that your business is strong, making money, and well-managed, they’ll be more likely to support you with the cash you need.
