When it comes to preparing for business funding, knowledge is power, especially financial knowledge.
Whether you’re pitching to venture capitalists or applying for a loan, your company’s financial health tells a story that funders will scrutinize closely. CEOs who enter funding conversations without a strong grasp of key financial metrics risk delays, rejections, or unfavorable terms.
To help you navigate this critical stage, we’ve outlined five essential financial metrics for CEOs. Monitoring and optimizing these metrics can strengthen your credibility and position your business for successful funding rounds.
1. Cash Flow
Cash flow measures the movement of money into and out of your business and is often the first thing funders examine. It reflects your company’s ability to manage income against ongoing expenses, making it a vital part of any business loan financials package.
Positive cash flow shows that your company can meet short-term obligations and reinvest in growth. It also signals to lenders and investors that you’re operating sustainably, not merely relying on external funding to stay afloat.
There are two types of cash flow you should track:
- Operating Cash Flow: Cash generated from your core business operations.
- Free Cash Flow: Cash available after accounting for capital expenditures.
Monitoring both inflows and outflows helps you anticipate shortages and build investor confidence. CEOs who proactively manage cash flow are far better positioned when preparing for business funding, especially in industries with seasonal or cyclical revenues.
2. Gross Margin
Gross margin is one of the most telling key performance indicators for small business owners. It measures how efficiently your company turns revenue into profit, after accounting for the cost of goods sold (COGS). A strong gross margin means you’re not only selling, but doing so in a way that generates profit.
To calculate it: (Revenue – COGS) ÷ Revenue = Gross Margin
This metric provides insights into pricing strategies, supplier relationships, and production efficiency. When margins are high, it signals to investors that your business has solid control over direct costs and a viable pathway to profitability.
In contrast, low or declining margins may raise red flags, suggesting that you’re spending too much to produce what you sell. As a CEO, staying on top of gross margin trends allows you to make timely decisions about pricing, sourcing, and scaling — all of which are critical when pitching to funders or compiling business loan financials.
Funders often compare your gross margin against industry averages. Doing so helps them determine whether your business model is scalable or if additional investment would only amplify inefficiencies.
3. Operating Expenses
Operating expenses include all the costs necessary to run your business — such as rent, salaries, utilities, and marketing. These expenses are scrutinized because they reflect how efficiently your company operates on a day-to-day basis.
Lenders and investors analyze your operating expense ratio (operating expenses divided by revenue) to assess stability and long-term viability. If expenses grow faster than revenue, it could signal poor cost control or an unsustainable business model.
According to CB Insights, 29% of startups fail because they run out of cash, often due to uncontrolled operating costs. This highlights how critical it is to monitor and manage these expenses closely when preparing for small business funding metrics.
If you’re planning to apply for a small business loan, demonstrating control over your operating expenses is key. Streamlined operations give funders confidence that you’ll manage their money wisely.
4. Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) measures how much you spend on marketing and sales to acquire a single customer. It’s calculated by dividing total marketing and sales expenses by the number of new customers acquired in a given period.
Why should CEOs care? A high CAC relative to customer lifetime value (LTV) can indicate that your business model isn’t sustainable. On the other hand, a low or improving CAC shows your company knows how to acquire customers efficiently.
Funders view CAC as a signal of scalability. They want assurance that increasing marketing spend will produce profitable growth—not just higher costs.
5. EBITDA
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a widely used metric that helps stakeholders understand a company’s core operational performance without the influence of financing and accounting decisions.
EBITDA offers a clear picture of your company’s profitability from operations alone. It helps standardize performance comparisons across companies and industries, making it a favorite among investors.
A strong, consistent EBITDA can demonstrate that your business is financially sound, operationally efficient, and ready for funding. It’s a key performance indicator for small business leaders looking to level up.
Final Thoughts & Action Steps
Monitoring these five metrics can significantly improve your chances of securing funding. They provide a snapshot of your financial strength and reveal areas for improvement.
As a CEO or founder, build internal dashboards to track these metrics regularly. Consult with financial professionals or use software tools to ensure your numbers are accurate and aligned with industry benchmarks.
Remember: funding success starts with financial clarity. Don’t enter the room without it.
