If you want to grow your business with confidence, you need to understand your cash flow, and that means going beyond just checking your bank balance. In this episode, Danielle Hayden, your go-to financial partner for all things bookkeeping, breaks down the 5 essential cash KPIs every CEO should track and explains how to use them to make smarter decisions for your business.
Key Takeaways:
- Cash Flow is the Lifeline of Your Business: Without clarity on cash flow, you’re reacting instead of leading—and that’s the fastest path to burnout or shutdown.
- KPIs Turn Insight Into Action: Knowing your bank balance isn’t enough; these 5 KPIs give you the clarity you need to plan, invest, and scale sustainably.
- Healthy Ratios = Peace of Mind: Metrics like the quick ratio and current ratio tell you whether you can handle surprises without panic.
- Free Cash Flow Is Your Decision-Making Tool: It reveals whether you can hire, invest, or pay yourself more without putting your business at risk.
- Cash Reserves Buy Confidence: Having 1-3 months of operating expenses in the bank gives you the power to make bold moves without sleepless nights.
The 5 CEO Cash KPIs We Cover:
- Free Cash Flow – What’s really left after running and growing your business?
- Operating Cash Flow to Liabilities Ratio – Can your business cover what it owes?
- Current Ratio – Do you have enough short-term assets to pay your bills?
- Quick Ratio – If you had to pay everything today, could you?
- Cash On Hand – How long can you keep the lights on without new revenue?
Topics Discussed:
(00:00 – 01:14) Why Cash Flow Makes or Breaks Your Business
(01:15 – 02:16) Why KPIs Matter Beyond the Cash Flow Statement
(02:17 – 03:07) Free Cash Flow: What It Is and Why It’s Critical
(03:07 – 05:02) Comparing Operating Cash Flow to Liabilities Ratio
(05:03 – 06:14) Current Ratio: What It Tells You and How to Calculate It
(06:14 – 07:26) Quick Ratio: What It Tells You and How to Calculate It
(07:27 – 08:28) Cash On Hand: Your Ultimate Safety Net and Ability to Investment
(08:35 – 09:42) Recap of the 5 KPIs to Track as a CEO
(09:44 – 10:27) Outro: Like, share, and subscribe!
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Episode Transcript
00;00;00;00 - 00;00;28;10
Danielle Hayden
Here's the truth, you guys: As a CEO, you cannot make smart business decisions without understanding your cash flow. Cash flow is the number one reason why businesses go out of business, so you cannot grow confidently, you cannot stay in business if you do not understand what your cash is doing. Today I'm going to give you the most important cash KPIs that you should be tracking and how to use them
00;00;28;10 - 00;00;31;10
Danielle Hayden
like a CEO.
00;00;31;13 - 00;00;58;11
Danielle Hayden
Hey there and welcome back to Business by the Books. I'm Danielle Hayden, your go to CFO and financial partner for all things business bookkeeping. Today we're diving into a new set of numbers, your cash KPIs. Now last week we talked about the cash flow statement, the issues that most business owners have with the traditional cash flow statement, and how to use your Cash Snapshot to make business decisions.
00;00;58;14 - 00;01;21;26
Danielle Hayden
Today, we're going to be adding on top of that with the cash KPIs. I'm not just talking about looking at your bank balance. I'm talking about understanding the total metrics of your business so that you're looking at the real financial health of your business. So why do you need KPIs in your business? Isn't the cash flow statement or the Cash Flow Snapshot good enough?
00;01;21;27 - 00;01;53;29
Danielle Hayden
Why do I need anything else? But here's one question I like to ask our clients: If your sales stopped tomorrow, how long could your business survive? If you can't answer that confidently, you're not managing your business. You're reacting to it. Cash KPIs give you insight, not just information. I want you stepping into your role as CEO and that means planning, protecting, investing, and growing for the future.
00;01;54;00 - 00;02;17;05
Danielle Hayden
And here's the best part, you guys, your bookkeeping team, your money team? They should be helping you calculate this information. But you don't need to be an accountant to understand KPIs. You just need to have the breakdown and the information provided to you so that then you can step into your power and analyze them. So what are the KPIs that we're talking about today?
00;02;17;08 - 00;02;42;22
Danielle Hayden
The first one is free cash flow. This is how much cash do I actually have left after running my business and investing in growth? I want to give you the calculation and then how to use it. So your free cash flow calculation, this is your operating cash flow minus any capital expenditures. Your capital expenditure, these are the big investments like equipment and property.
00;02;42;27 - 00;03;07;26
Danielle Hayden
But this number this tells you what you have left to pay yourself, to save for the future, or reinvest in the future months. We need to use our free cash flow to decide if you can hire, if you should invest in coaching equipment, rebranding, pay yourself more. This number tells us if you have a buffer in your business or if you're burning through cash.
00;03;07;27 - 00;03;31;13
Danielle Hayden
Next is our operating cash flow to liabilities ratio. The question here is can I cover what I owe using only the cash my business generates? This ratio compares your cash flow from your operations to your current liabilities. What does all that mean? I know, a lot of accounting terms, you guys. This ratio, what it’s comparing is the cash flow from your business.
00;03;31;13 - 00;04;01;03
Danielle Hayden
That's what operations means is cash in, cash out to operate your business. Your liabilities, it's very simple. Who do you owe money to? The liabilities. This is your credit card. Your line of credit. Your uncle who gave you a loan to start your business. So this ratio is going to compare how much cash flow you are generating from your operations in comparison to how much money you owe for your liabilities.
00;04;01;04 - 00;04;30;05
Danielle Hayden
So your ratio is near or above 1.1. This means that you're generating enough cash in your business to cover those obligations, to cover your debt. Now, if that number's below one, you might be overextended as a business. Now, I don't want you to rush to panic. This is a tool to help us understand. So here we can ask ourselves, am I scaling sustainably?
00;04;30;07 - 00;04;58;17
Danielle Hayden
Growth for the sake of growth is not always better. Do you need to slow down spending, improve cash, increase collections? We need to have enough cash coming in from our business to cover the debt of our business. Remember, you guys, I want you to have a healthy and sustainable business. That doesn't mean if you're below one, we should shut things down or shame ourselves.
00;04;58;19 - 00;05;21;29
Danielle Hayden
It means that we have the information and the tool to make change and make progress. The next two, these are some of my favorite ratios. Next we have the current ratio. This ratio helps us understand do I have enough in short-term assets to pay my short-term bills? So the formula to calculate this if you're doing it on your own is current assets divided by current liabilities.
00;05;22;00 - 00;05;54;11
Danielle Hayden
Now again, a lot of accounting terms. Assets, this is what you own. Cash, inventory, receivables, equipment, and those items you have possession over. Our current liabilities are the dollars that we owe to other people. Now an ideal target for this ratio is 2.1. This means that for every dollar that you owe, you have $2 to cover it. You guys, we need cash flow to create a secure business.
00;05;54;13 - 00;06;16;20
Danielle Hayden
Last minute cash needs, they happen, and I want you to have enough cash, receivables and inventory to cover if your line of credit gets called tomorrow or you have to pay down all of your credit cards, I want you to have enough cash in the business to be able to handle that type of debt. Next, we have the quick ratio.
00;06;16;22 - 00;06;45;17
Danielle Hayden
The quick ratio answers if I needed to pay all of my bills today without selling inventory or waiting on any invoices, could I? So this formula is cash plus receivables, plus short-term investments divided by current liabilities. Now a 1.1 or higher is healthy. This number tells us how liquid your business is and could you pivot quickly if you needed to?
00;06;45;19 - 00;07;19;06
Danielle Hayden
We have some clients who, if they needed to collect cash on their receivables right now, they really couldn't. And if they needed to sell their inventory, it wouldn't be easy to sell the inventory and they might actually get a much lower cost for the inventory than what they paid for it. Also, if they went in and liquidated all of their assets and their equipment and leasehold improvements, they wouldn't get the same amount of money for them, and it would be really difficult to actually liquidate them and get the cash in the door.
00;07;19;07 - 00;07;40;21
Danielle Hayden
So the quick ratio, it really helps us understand if you needed to pay down your debts today, could you? Lastly is our cash on hand. This is how much cash is actually in the bank right now. And this is the number that most of us play with and are the most comfortable with. However, I want you to look at it differently.
00;07;40;24 - 00;08;06;11
Danielle Hayden
This number to me is how long can you keep the lights on without any new revenue? I want every single one of our listeners and our clients to have a cash reserve of 1 to 3 months worth of operating expenses. It is important that we can sustain our business once we know how much money is in the bank right now versus our cash reserve goal.
00;08;06;14 - 00;08;29;09
Danielle Hayden
That's when we can decide what risks we want to take on. Where do we want to invest and where do we want to pause this? For me, this is the sleep better at night number. I need to know that I've got a buffer for my vendors, for my team, for my peace of mind. I love knowing my cash on hand number, but you guys, it doesn't end there.
00;08;29;10 - 00;08;50;07
Danielle Hayden
There's so many cash KPIs that we can be using to decide whether or not we're going to invest in our business. So let's recap our five CEO cash KPIs. Our free cash flow. What cash flow is left to work with? Number two, our operating cash flow to liabilities. Can your business cover what it owes and our current ratio?
00;08;50;14 - 00;09;16;09
Danielle Hayden
Do your assets cover your short-term debts? Our quick ratio: What if you need cash right now? Last one, cash on hand. What is in the bank right now and how does that stack up to your reserve goal? When you track these, you're not just hoping and praying things will work out. You're leading with clarity and confidence. So here's your action steps:
00;09;16;11 - 00;09;44;12
Danielle Hayden
I want you to take your last Snapshot or ask your bookkeeper for these KPIs. Review them, understand them, and monitor. Are they healthy and are they improving? If you don't have a money team to help you see these numbers clearly each month I want you to go to KickstartAccountingInc.com right now and book a call with our team so that you can start to step into your confidence and power as a true CEO.
00;09;44;15 - 00;10;27;07
Danielle Hayden
I hope you enjoyed today's episode of Business by the Books. Don't forget to hit like and subscribe! This is the number one way we can help other entrepreneurs find this podcast, because here at Kickstart Accounting, Inc., it is our mission to help entrepreneurs understand their numbers, get access to this information, and grow and thrive in their business. So please help me, help other entrepreneurs understand their numbers so they can finally grow and thrive.