KPIs Every Remote CFO Should Track (and How Often)

KPIs Every Remote CFO Should Track (and How Often)

In the rapidly changing landscape of business, having a strong financial leader is crucial, especially in a remote setup. A Chief Financial Officer (CFO) plays a pivotal role in steering financial strategy. However, for a remote CFO to be effective, they need to track the right Key Performance Indicators (KPIs). This article outlines essential KPIs every remote CFO should monitor and how often to review them to ensure your business remains on the right financial track.

1. Cash Burn Rate

The cash burn rate indicates how quickly your company is using its cash reserves. Understanding this metric is vital for assessing the sustainability of your business operations, especially for startups and companies in growth phases.

• What to Track: Monthly cash outflow.
• How to Calculate: Cash Burn Rate = (Starting Cash – Ending Cash) / Number of Months.
• Frequency: Review monthly.

2. Gross Margin

Gross margin measures the difference between sales and the cost of goods sold (COGS). It reflects how efficiently a company uses its resources to produce and sell products.

• What to Track: Gross Profit Margin Percentage.
• How to Calculate: Gross Margin = (Revenue – COGS) / Revenue x 100.
• Frequency: Review quarterly.

3. Cash Runway

Cash runway tells you how long your business can operate before it runs out of cash. This KPI is particularly vital for startups or companies looking to scale.

• What to Track: Time until cash depletion based on current burn rate.
• How to Calculate: Cash Runway = Current Cash Position / Cash Burn Rate.
• Frequency: Review monthly.

4. Collections Cadence

This KPI measures the efficiency of your accounts receivable process. A healthy collections cadence ensures that cash flow remains consistent, minimizing the risk of cash shortfalls.

• What to Track: Days Sales Outstanding (DSO).
• How to Calculate: DSO = (Accounts Receivable / Total Credit Sales) x Number of Days.
• Frequency: Review monthly.

5. Return on Investment (ROI)

ROI is a critical KPI for evaluating the effectiveness of investments made by the company. It helps in understanding whether the returns justify the costs involved.

• What to Track: ROI Percentage for each investment.
• How to Calculate: ROI = (Net Profit / Cost of Investment) x 100.
• Frequency: Review quarterly.

6. Operating Cash Flow

Operating cash flow measures the cash generated from your normal business operations. This KPI is essential for assessing the liquidity of your business.

• What to Track: Cash flow from operations.
• How to Calculate: Operating Cash Flow = Net Income + Non-Cash Expenses + Changes in Working Capital.
• Frequency: Review monthly.

Case Example: Monitoring Cash Runway for a Startup

Consider a tech startup that has raised $500,000 in its initial funding round. The company has a monthly burn rate of $50,000. By calculating the cash runway, the remote CFO determines that the startup has a runway of 10 months. This information is crucial for planning future funding rounds. If the burn rate increases or revenue projections fall short, the CFO can take decisive action to pivot strategy or cut costs, ensuring the business remains viable.

TL;DR

• Track Cash Burn Rate monthly to understand cash usage.
• Monitor Gross Margin quarterly to evaluate production efficiency.
• Calculate Cash Runway monthly for sustainability insights.
• Review Collections Cadence monthly for cash flow management.
• Evaluate ROI quarterly to assess investment effectiveness.
• Check Operating Cash Flow monthly to gauge liquidity.

As the business landscape continues to evolve, hiring a remote CFO who understands these KPIs can provide the financial clarity needed to navigate challenges effectively. If you’re considering bringing on remote financial talent, hire a remote CFO today to keep your financial strategy on track.