Other key findings include:
- Business model is the clearest determinant of success: the best performing Intellectual Property (IP) owners are twice as profitable as Retail and Distribution companies (by EBITDA)
- With the right interventions, business performance can improve dramatically over a short period: 49% of the poorest performing companies were able to move up to the middle or top tiers over four years
- There is little variation attributable to country of origin: management decisions have far greater impact on business success than local economic conditions
Across all business models, the companies within the bottom tier held an average of under a single days’ cash on hand, and the middle tier fared little better with an average of two days. Even when factoring in the companies within the highest tier, which are the most liquid with around 15 days of cash on hand to cover operating costs, the median time for all 72,011 companies before external funding sources would be required was a meagre 2.5 days. This raises the likelihood of businesses assuming expensive short term finance to cover ongoing liabilities.
Perhaps surprisingly, given the popular emphasis on national economic conditions, the results showed few differences related to the country within which a business operates. Instead, there was a strong and consistent correlation between business model and all measures of business success. Top tier Intellectual Property (IP)-owning companies, for example, enjoy profitability of at least 17.8 percent, whereas equivalent businesses in the Retail and Distribution sector can expect to generate profitability of just 8.7 percent or more. This suggests that owners and managers who adopt the right business model at the outset, or who position themselves correctly in the market, stand to reap far greater rewards than others.
Gareth Jones, Head of Entrepreneurial Business Services at Mazars, said: “These findings demonstrate the tight margins and challenging market conditions within which most mid-sized businesses operate. Although they’re a vital cog in the economy, it seems that many of these companies simply aren’t living up to their potential. However, the news is positive for those companies willing to step back and take a strategic look at their operations: this study emphasises clear areas of focus which can help owners and managers carve a competitive advantage and generate capital value in the long term”.
The results were generated by analysing 72,011 mid-sized companies (those with a turnover of between €10m and €200m) in the EU28 across a 4 year period. Businesses were split by model, adapted from the MIT categorisation, and analysed according to four key performance indicators: profitability, return, liquidity, and strength. The best performing 20% are categorised as top tier, the middle 60% represent the middle tier and the weakest 20% are considered the bottom tier.
The full paper is available for download at www.mazars.co.uk/optimize
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