You can check whether your startup is financially healthy with eight metrics in about 30 minutes. This article gives you the checklist with formulas and a traffic light for each metric, tells you what to do when a metric is red, and points to a detailed article for each one.
Key points
- Eight metrics cover liquidity, efficiency, planning quality and finance processes.
- Each metric gets green, yellow or red. The thresholds are rules of thumb for orientation, not standards.
- Scoring is simple: count the yellow and red fields, and you know how urgently you need to act.
- Run the check monthly after the close, always with the same definitions.
What you need for the check
You need four documents: the current balance of all bank accounts, the management accounts or profit and loss statement for the last three months, the list of open receivables and payables, and your latest forecast. For software companies, add the recurring revenue per customer from the billing system.
Most of these figures come from your bookkeeping, for example in DATEV, Lexware Office or sevDesk. Which tool fits which company size is covered in the comparison DATEV alternatives for startups.
The checklist: eight metrics with a traffic light
The thresholds in the table are common rules of thumb from practice with growth-financed companies. They are for orientation. Industry, stage and business model shift what a good value is.
| Metric | Formula | Green | Yellow | Red |
|---|---|---|---|---|
| Runway | Available cash ÷ monthly net burn | over 18 months | 12 to 18 months | under 12 months without committed funding |
| Burn Multiple | Net burn ÷ net new ARR in the same period | under 2 | 2 to 3 | over 3 |
| Quick ratio (liquidity ratio 2) | (Cash + short-term receivables) ÷ short-term liabilities | 100% and more | about 80 to 100% | under 80% |
| Forecast variance | (Actual net burn − planned net burn) ÷ planned net burn | within ±10% | 10 to 20% | over 20% or three months in a row in the same direction |
| Gross margin | (Revenue − direct costs) ÷ revenue | Software: 70% and more | Software: 50 to 70% | Software: under 50% or declining |
| NRR (SaaS only) | (Starting MRR + expansion − downgrades − churn) ÷ starting MRR | 100% and more | 90 to 100% | under 90% |
| Days sales outstanding (DSO) | Open receivables ÷ revenue of the period × days in the period | at most 10 days over the agreed payment term | 10 to 30 days over | more than 30 days over or rising for three months |
| Time to close | Working days from month end to the approved monthly report | up to 10 working days | 11 to 20 working days | over 20 working days or no monthly close |
1. Runway
Runway tells you how many months your cash lasts at today's spending. Net burn means cash out minus cash in per month, averaged over the last three months. Because a funding round often takes six to nine months, you should start the conversations at yellow at the latest. The calculation with scenarios is in the article How to calculate runway.
2. Burn Multiple
The Burn Multiple shows how much money you spend for each euro of new annual recurring revenue (ARR). A value of 2 means 2 euros of burn for 1 euro of new ARR. For companies without recurring revenue, you can use revenue growth instead. More in the article Burn Multiple and Rule of 40.
3. Quick ratio (liquidity ratio 2)
It checks whether cash and short-term receivables cover the liabilities of the next months. Startups after a funding round are usually far above 100%. The metric becomes interesting when the bank balance falls and overdue receivables flatter the value. Formulas and limits are explained in the article Liquidity ratios.
4. Forecast variance
Here you compare planned and actual net burn of the last month. A single variance is normal. It becomes critical when the plan misses in the same direction every month: then the assumptions are wrong, and your runway is wrong too. How to explain variances cleanly is shown in the budget vs actual variance analysis; how to keep the plan current is covered in the article on the rolling forecast.
5. Gross margin
Gross margin shows what is left of revenue after direct costs, for software typically hosting, licenses and customer support. The thresholds in the table apply to software. For retail, hardware or services, your own trend over several months says more than a fixed value. How the margin feeds into customer value and payback is covered in the article Calculating unit economics.
6. Net Revenue Retention (NRR)
NRR measures how the revenue of your existing customers develops over twelve months, without new customers. Above 100% means expansion more than offsets churn and downgrades. For products aimed at small businesses, values are usually lower than for large customers. If you do not have a SaaS model, use the monthly churn rate instead. Details in the article NRR and GRR.
7. Days sales outstanding (DSO)
DSO stands for days sales outstanding, the average number of days until customers pay. Compare the value with your agreed payment term: if it is well above, cash sits in unpaid invoices instead of in your account. How to bring it down is covered in the article Cutting working capital.
8. Time to close
All other metrics are only as current as your monthly close. If the numbers arrive only after four weeks, you are reacting to the position of two months ago. Ten working days is a realistic target for many companies. A schedule for it is in the month-end close calendar.
How to read the traffic light
Count the colors and classify the result like this:
- Stable: no red and at most two yellow. Keep checking monthly.
- Action needed: one red or three or more yellow. For each affected metric, set one measure with a responsible person and a date within the next four weeks.
- Urgent: two or more red, or runway in red. Act now, not at the next check.
If you lack the data for a metric, it counts as red. Record the result in one line every month. After a quarter you can see whether the situation is improving or getting worse.
What to do when a metric is red
- Plan liquidity week by week. If runway is red, a 13-week cash flow forecast replaces the monthly view. It shows in which week things get tight.
- Rank spending by lever. List all costs above EUR 1,000 per month and mark what can be stopped or postponed within 30 days. Check new hires and long-term contracts first.
- Collect receivables. Follow up personally on all invoices more than 30 days overdue. For new contracts, agree shorter payment terms or prepayment.
- Start financing early. Talk to existing investors before runway falls below six months. With little time left, you negotiate worse.
- Take warning signs seriously. Which signs come before a shortfall is shown in the article Spotting a liquidity squeeze early. If insolvency looms, fixed rules apply to the management: see German insolvency filing deadlines.
When external support makes sense
If several metrics stay red for a long time or nobody on the team can deliver the numbers reliably every month, a fractional CFO for a few days a month often helps, or, under acute pressure, a full-time interim CFO for a limited time.
Read on
Matching spreadsheets to fill in are in the free Excel templates for finance and controlling.
Frequently asked questions
How often should I run the financial health check?
Once a month, right after the monthly close, as long as your company is burning cash. If the business is profitable and stable, a quarterly rhythm is enough. Before a funding round or after a surprising month, an extra run is worthwhile.
Do I need special software for this?
No. The numbers come from your bookkeeping, the bank account and the open items list. A table with eight rows is enough if you fill it the same way every month. Dedicated planning software only becomes interesting when several entities or scenarios come together.
What do I do if I lack the data for a metric?
Enter the metric as red. Missing data is a finding in itself: if you do not know your DSO or your forecast variance, you are steering blind in that area. Next month, clarify who provides the number and where it comes from.
Are the traffic light values valid for every startup?
No. They are common rules of thumb, mostly from practice with software and platform companies. A hardware startup has a lower gross margin, and a company with annual prepayments has a different liquidity structure. More important than any single threshold is how your values develop from month to month.
Does the health check replace liquidity planning?
No. The check shows where things go wrong, liquidity planning shows when things get tight. As soon as runway is yellow or red, week-by-week planning is part of the job.
Should I share the results with investors?
Yes, if you run the check regularly. A monthly overview with traffic lights and a short comment is often more useful to investors than a long report. Explain red values together with the planned measure instead of leaving them out.
