KPIs or Cash: What Really Matters in Business?
Would you rather improve your KPIs or have more cash in the bank?
Would you rather improve your KPIs, or have more cash in the bank?
Nobody would actually pick the dashboard over the money if you put it to them straight. But in practice, most businesses spend far more time and attention on KPIs than they do on cash.
I've spent decades inside businesses, through growth, acquisitions, refinancing, expansion, restructuring, turnaround, and sale processes, and it's one of the most consistent things I've seen. People manage what they understand, and most people understand a handful of KPIs a lot better than they understand their business cashflow.
That's not a criticism. It's worth understanding why it happens, because once you see it, it's hard to unsee.
Why KPIs get the attention, and cash doesn't.
Most businesses run on margin, profitability, growth, or some version of a scorecard, rather than cash. People are trained on those numbers. They're taught them at college; they see them in every board pack, every management meeting, every industry benchmark. Gross margin, EBITDA, revenue growth, these terms are the language of business as most people learn it.
Cash is different. Very few businesses build a genuine habit of watching what their cash is actually doing and what it is likely to do over the next few weeks or months. It's not that people don't think cash matters; everyone will tell you it does. Few people have been taught to look at cash in the same way they've been taught to look at margin. So when something needs attention, people reach for the measure they already know how to read, and that's usually a KPI, not a cash position.
That's why a business can be having a genuinely good year on paper, sales up, margins holding, efficiency improving, and still be running low on cash without anyone in the room clocking it early enough. Nobody's ignoring it on purpose. It's just not the number that's front and centre.
The dashboard says one thing, the bank says another.
A business can show growing sales, better efficiency, strong order intake, decent margins… and still run out of cash. I've seen it plenty of times, and it's rarely because anyone was asleep at the wheel. It's usually because the numbers everyone was watching weren't the ones that mattered most at that moment.
Profit is an accounting measure. A KPI is a performance measure. Neither one is money you can actually spend. You can't pay wages with EBITDA. You can't pay HMRC with an improvement in OEE. You can't pay a supplier with a favourable variance on a dashboard. At some point you have to turn what you do into cash, and cash doesn't care about any of the language used to describe performance elsewhere in the business. It just tells you whether things are moving fast enough to keep going.
This isn't only relevant when things are going wrong. Growing businesses need the same discipline, maybe more of it. Growth costs cash before it makes any — you're paying for people, stock, equipment, customer credit and capacity, all ahead of the extra revenue actually landing in the bank. A profitable business can run out of cash. A growing one can run out of cash. A business with a full order book can run out of cash. It happens more often than people expect, precisely because growth looks like success on every other measure.
What "we need to improve our KPIs" actually leaves out.
I come across this phrase a lot — in strategy documents, board packs, job ads for finance roles: develop and implement a meaningful suite of KPIs across the business. It's not a bad instinct. People genuinely want to get better at measuring what they do. But the phrase on its own doesn't tell you much, because it skips past the useful questions: improve what? Why? What's actually going wrong at the moment? What would it be worth fixing?
The more useful version of that sentence usually sounds a lot more specific. Something like: "We're losing too much material on Line 3. It's costing us £40,000 a month. If we get waste down from 8% to 5%, we get back £15,000 of margin." That's a real problem, with a number attached, and something concrete you can go and do. The KPI — the waste percentage — is the scoreboard that tells you afterwards whether the fix worked. It's not the fix itself.
That's the order I'd encourage people to work in. Start with what needs to change and why. Work out what it's costing you. Decide what you're going to do about it. Then use the one simple relevant KPI to check whether it worked. Businesses get better because someone improves something in how the business operates — cuts waste, increases yield, renegotiates a contract, collects a debt, fixes a process, stops selling something that loses money. The number on the dashboard moving is the evidence, not the cause.
You can't pick the right measures until you know what you're trying to do.
Before deciding what to measure, ask what the business is trying to achieve right now, because the answer changes what's worth watching.
If you're preparing to sell, you care about what a buyer will look at — how sustainable the earnings are, how concentrated the customer base is, what could knock value off the price, what will hold up under scrutiny. If you're expanding quickly, you care about cash consumption, working capital, capacity, and whether the growth creates value or just revenue. If you're bringing in an investor, you care about the investment case and whether the assumptions behind it are realistic. Divesting part of a business raises a different set of questions again. And if the business is simply solid and trying to do a bit better every year, the job is to find what drives its performance and focus there.
Those are genuinely different situations, and a generic set of KPIs applied across all of them tends to measure the wrong thing in at least one. Used well, KPIs are also a useful way to explain a business to someone outside it — a buyer, a lender, an investor, a regulator. That's a fair and sensible use of them. The story you tell an investor isn’t how you actually run the business day to day. Those can be related, but they're two different jobs.
Five things worth understanding before looking at anyone's dashboard.
Every business is different, so no single KPI list fits all. These are five areas that, in my experience, tell you how a business actually works.
Where the cash goes. Not the bank balance today — the whole journey. What's tied up in stock. How long customers actually take to pay you, versus your terms on paper. What your supplier terms really are. What capital spend is just keeping things running versus what's genuinely building value. Where cash is leaving the business for reasons that don't help it. Profit tells you an edited story. Cash usually tells you a more honest one.
What things actually cost. Not just the raw material line — the whole chain behind it. Labour, yield, waste, energy, packaging, freight, storage, rework, distribution, discounting, commission, returns, customer-specific requirements, payment terms, and the cost of the stock sitting there before anyone buys it. Add all of that up and ask what you're genuinely left with once it's sold. It's often a different number from what the average gross margin gives you.
Where the return actually sits. Turnover gets most of the attention in a business. I'm more interested in what comes back. A £20 million product line isn't automatically worth more to a business than a £5 million one once you account for the capital, stock and management time it takes up. Look at return by product, customer or division rather than as one blended figure, and you start to see where the value genuinely is, and where it's being carried by something else.
What the people actually know. No dashboard tells you this. Do the people in the business understand where it makes money and where it doesn't? Does finance understand operations? Does operations understand what its decisions cost commercially? Numbers tell you what happened. People, when you ask them directly, can often tell you why, and usually well before it shows up anywhere official.
How fast things actually happen. How long it takes to make a decision, develop a product, resolve a quality issue, respond to a customer, turn raw material into something you can sell, turn that into an invoice, and turn the invoice into cash. A business can have a genuine opportunity in front of it and still miss it, simply because everything inside takes too long to move. You don't need a complicated measure for that. You need to find where things get stuck and understand what the delay is costing.
Averages hide a lot of the real picture.
Look past the averages in a business, and you'll usually find something worth acting on.
Average margin, average selling price, average customer profitability — they're comfortable numbers to report, but they hide a fair amount underneath them. You might have one customer generating good returns and another taking up a lot of effort for very little back. You might have a product range with a decent average margin while a chunk of that range is effectively being carried by the rest of it. One of your biggest customers by revenue might be one of your least profitable by contribution. None of that shows up in an average. You can act on all of it once you actually see it.
A KPI can be working perfectly and still make the business worse.
Give every department its own KPI, and people may well get very good at hitting it — sometimes in a way that hurts the business as a whole.
Procurement cuts purchase price and quality suffers. Manufacturing maximises output and builds stock nobody needs yet. Sales grows revenue by discounting margin away. Finance shrinks working capital in a way that pressures the supply chain. Every department can hit its target while the business overall gets worse. The KPIs aren't broken in that scenario — they're doing exactly what they were designed to do. The gap is in looking at each department separately instead of the business from start to finish. Improving one function isn't the same as improving the business.
So, KPIs or cash?
Both matter. KPIs can be genuinely useful — they can flag a problem early, and they're a visible way to explain a business to an investor or a buyer. Cash is what all of that activity is ultimately in service of, and it's the number that tells you, without any interpretation needed, whether the business can keep going.
If a measure isn't clearly understood, if nobody owns it, if nobody's sure what to do when it moves, or if you can't trace how it connects back to cash or value, it's worth asking what it's actually there for.
Measure what matters. Keep the list short enough that the people responsible for each one genuinely understand it. Follow it all the way through the business rather than stopping at department lines. And when in doubt, come back to the question that cuts through most of the noise:
Where is the cash?
Learn the finance that actually matters.
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