The metrics a managing director really needs

Profit on paper, empty bank account

In 2025, the local courts in Germany registered 24,064 corporate insolvencies, more than in any year since 2014. According to an analysis by the credit agency Creditreform, more than 80 per cent of these insolvencies affected micro-businesses with no more than ten employees. Back in 2006, the credit insurer Euler Hermes and the University of Mannheim asked 125 insolvency administrators about the causes. Top of the list was a lack of financial controlling at 79 per cent, ahead of funding gaps and poor receivables management.

Controlling sounds like a department and a reporting system. For a company with twelve employees it means something simpler: the managing director knows a handful of figures, and knows them now rather than when the annual accounts arrive. Five key figures are enough to start with. They answer three questions: whether the company can pay its bills next month, whether it earns money from its work, and whether it can survive a bad month.

Bank balance and liquidity forecast

The first figure is the bank balance, together with everything falling due over the coming weeks: salaries, rent, social security contributions, taxes, suppliers, loan repayments. Against this stand the incoming payments that can be relied on. Together they produce a liquidity forecast. Lawyers and restructuring advisers recommend looking at least 13 weeks ahead, week by week. For a small company, a spreadsheet with one column per week is enough.

This forecast is more than good management practice. Since 2021, the law has required managing directors of a GmbH and other limited liability companies to monitor developments that threaten the company's survival on an ongoing basis. If the company can no longer pay its invoices when they fall due, it is insolvent. At that point, no more than three weeks remain to file for insolvency, and this deadline is not a window for negotiation. Anyone who misses it becomes personally liable and commits a criminal offence. By contrast, anyone who sees the squeeze coming three months in advance in their spreadsheet has time to talk to the bank or to clients.

Outstanding invoices and payment periods

The second figure is in the list of outstanding items: how much money do clients owe the company, and for how long? Creditreform analysed around 3.8 million invoices for the second half of 2025. On average, companies gave their clients payment terms of just over 32 days, and those clients then paid a further seven and a half days late. So on average it takes almost 40 days for the money to arrive. Issue an invoice at the beginning of March and you have the money in mid-April. By then the March wages have long since been paid.

That is why the average payment period of your own clients belongs on the managing director's sheet. If it rises, that is an early warning signal, even if turnover looks fine. It calls for a fixed routine: invoice on the day the work is done, reminder the day after the due date, phone call a week later. The insolvency administrators in the Mannheim survey named inadequate receivables management as a cause in 64 per cent of cases.

Gross profit and return on sales

Turnover is the figure everyone knows and the one that says the least. What matters more is what is left of it. Gross profit is turnover less the cost of goods and bought-in services, in other words the money the company has to use to pay staff, rent and everything else. It appears near the top of every management accounts report from the tax adviser, known in Germany as the BWA. A trade business that increases its turnover but has to buy in more materials to do so can end up with a lower gross profit than the year before.

The return on sales shows how much profit is left from each euro of turnover. According to the SME panel run by the development bank KfW, it most recently averaged 7.0 per cent across German SMEs: of every euro of turnover, seven cents remained as profit. The average is only a rough guide, because sectors differ widely. The comparison with your own previous years is more telling. If the return falls three months in a row while turnover rises, the company is probably selling too cheaply or working too expensively.

Equity ratio as a buffer

The fifth figure is in the balance sheet: the equity ratio, in other words the share of equity in the company's total capital. It shows how much loss the company can absorb before its debts exceed its assets. According to the KfW SME panel, the average equity ratio among German SMEs most recently stood at 30.7 per cent. At the same time, 28.4 per cent of companies had less than ten per cent equity, and for six per cent it was negative.

Negative equity has legal consequences. If the assets no longer cover the debts, the company is over-indebted, unless it is more likely than not that the business will continue. In that case, no more than six weeks remain to file for insolvency. The equity ratio changes slowly, so a look once a quarter is enough. But the managing director should know where it stands before the bank asks.

What the BWA does not show

Many small companies receive monthly management accounts from their tax adviser. These provide turnover, gross profit, costs and operating profit, and are therefore the basis for two of the five figures. But there are two things the standard BWA does not show: liquidity and outstanding receivables. An invoice counts as turnover there as soon as it is issued, even if the client has not yet paid. That is why the BWA can report a profit while the bank account is empty. The list of outstanding items and the liquidity forecast have to sit alongside it.

A fixed rhythm helps: bank balance, forecast and outstanding items weekly, the BWA in the following month, the equity ratio each quarter. More key figures rarely bring more insight. Anyone who collects 30 values in a single overview ends up reading none of them. Five figures on one sheet, every Monday, is the better plan.