Is your company at risk? Financial pressure usually builds up gradually. It mostly starts with compact signs that, if ignored, can lead to bigger problems. Teams and boards that spot these early signs can take quick action to avoid more serious financial issues.
Recent data from Real Business Rescue shows that nearly half of SMEs in the UK are having cash flow and profit problems. About 49,000 companies are experiencing severe financial distress. This highlights that leadership teams need to monitor key financial indicators closely.
Monitoring these financial indicators can maintain stability and manage risks effectively.
At Project Lion, we help you tackle financial challenges, focusing on essential financial metrics for businesses in the UK and US markets.
This article highlights five key financial metrics that leadership teams and boards should monitor to ensure informed decisions and long-term stability.
Essential Financial Measures for Strategic Decision-Making
Here are the five essential financial measures for strategic decision-making:
Cash Flow Imbalance
A cash flow imbalance indicates potential financial risks for a business. Consistent cash flow issues, whether insufficient or disproportionate, may signal inefficiencies or liquidity problems. Boards should regularly look at cash flow statements. They should focus on trends rather than random changes.
In 2025, 47% of SMEs in the UK had ongoing cash flow issues. This situation hurt their working capital and limited their ability to grow.
A cash flow imbalance may mean that a business is not making enough money or is not managing its costs perfectly. If these issues are not addressed, they can lead to bigger problems, such as difficulty paying for daily expenses or meeting debt obligations.
Leaders should establish systems to closely monitor cash flow and create forecasts to spot potential issues. A solid plan that includes maintaining a cash reserve and cutting unnecessary costs can help prevent cash flow problems from becoming serious threats.
Increasing Reliance on Creditor Forbearance
Relying too much on creditors, where lenders extend payment deadlines or even delay repayments, can be a serious warning sign. While this might provide short-term relief, it often masks deeper financial issues and can strain relationships with lenders.
If a firm depends on creditor leniency, it suggests that it struggles to meet its obligations and may encounter more financial challenges. Extended leniency can:
- Hurt credit ratings
- Limit funding
- Increase vulnerability
Boards should closely monitor all creditor agreements and avoid relying heavily on long payment terms. Regular financial check-ins with creditors could result in better terms. Management must also ensure that internal processes are efficient to prevent repeated reliance on leniency.
When we asked the insolvency practitioners at Insolvency Online which indicators most often precede formal restructuring, they pointed to prolonged cash-flow imbalance and increasing reliance on creditor forbearance as early indicators leadership teams should not ignore.
Declining Profit Margins
Decreasing profit margins often indicate that a company may be facing financial issues. This occurs when a company’s cost of goods sold rises faster than its sales, leading to lower profits. Progressive lower margins might indicate problems with pricing, supplier negotiations, or overall efficiency.
Falling profit margins can be an early sign of financial trouble when a business’s costs of goods sold grow faster than sales, leading to declining profitability. Consistently low margins indicate problems with:
- Pricing strategies
- Vendor negotiations
- General efficiency
A drop in profit margins affects a company’s ability to reinvest in growth, pay off debts, or manage unexpected expenses. A shrinking margin suggests that a company is losing its competitive edge or is slow to adapt to market changes.
To optimise your pricing strategy and reduce operational costs, take a look at this guide to improve your profit margins and financial stability.
Increased Operational Costs
Higher operational costs without increased production or income can negatively impact a company’s financial health. This may result from:
- Inefficiencies
- Rising raw material costs
- Poor resource management
Leaders should monitor what drives up these costs.
If operational costs are not kept in check, profits can drop, making it harder for the firm to compete. Leaders need to spot areas where the company is wasting resources and take action to address them.
Boards should focus on controlling costs through:
- Regular audits
- Process improvements
- Technology
An effective operations strategy can lower unnecessary costs while ensuring quality and efficiency are maintained.
Deteriorating Customer Retention and Sales Pipeline
A shrinking sales pipeline and customers leaving can signal financial issues for a firm. High customer churn and lower sales may mean that customers are unhappy with the products, services, or the brand. These concerns often arise before any significant drop in revenue or financial stability.
A weak sales pipeline and low customer retention can lead to reduced income, making it hard for the business to maintain a steady cash flow. If leadership does not address these issues, the company may fall behind competitors or lose its market position.
Leaders need to actively engage with customers and gather feedback to find areas for improvement. To improve the sales pipeline, they should invest in marketing strategies, enhance customer service, and offer loyalty rewards to retain customers.
To gain more insights into customer retention, check out this visual guide to learn tactics which will keep customers returning.
Conclusion
Good leadership teams know that financial issues do not arise suddenly; they develop over time and show signs before a crisis occurs.
By watching for changes in cash flow, reliance on creditors, decreasing profit margins, rising costs, and waning customer loyalty, leaders can identify risks early and respond appropriately.
Seeing these signs helps organisations make smart choices that protect their finances and promote long-term stability.
Boards must regularly review key indicators and get independent financial assessments when internal oversight is insufficient.
