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Mid-Sized Businesses Face Worrying Lack of Liquidity
By Graham Clifford.
A severe lack of liquidity across Europe means that 51 percent of mid-sized businesses would have to turn to external sources of funding after just three days, in the event of an unexpected drop-off in trading.
That’s according to the findings of a new study by international accounting and advisory firm Mazars, which analysed over 72,000 mid-sized businesses (those with a turnover of between €10m and €200m) in the EU over a four-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.
Across all business models, the companies within the bottom tier (20 percent) held an average of under a single days’ cash on hand, and the middle tier (60 percent) 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.
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.
Lorcan Colclough, Head of Entrepreneurial Business Services at Mazars Ireland, told the Sunday Business Post: “These results are a reflection of the challenges facing most mid-sized businesses in Ireland. These businesses are core to both the Irish and European economies, but it seems that many simply aren’t maximising their potential. Day-to-day operations are dominating the management agenda, often leading to the neglect of the long-term drivers of shareholder value.”
He continued: “On a positive note, the study shows that improving the performance and enhancing the value of the business can be within the control of the owners and management. Those who can strike the right balance between driving today’s performance and proactively taking control of the drivers of long term capital value will reap the rewards.”
Mazars is one of the fastest growing professional services firms in Ireland specialising in audit, accountancy, advisory and tax services. Mazars is based in Dublin, Galway and Limerick and is also part of a single international integrated partnership of over 20,000 employees in 86 countries.
And now it has developed a three-step programme called Optimize, that will focus business leaders and management on their long-term agenda, and enable them to assess opportunities, cope with change, improve decision-making and align actions with strategic objectives. At the heart of Optimize is the objective of partnering with Mazar’s clients to help them enhance shareholder value.
Emer O’Riordan, Director of Entrepreneurial Business Services at Mazars Ireland, said: “The programme is different as it takes a holistic view of the business and focuses on a gap analysis across the big five drivers of value – the goals and ambitions of the shareholders and management, the market position, how effective are their operations, people and teams and the financial fundamentals. We identify the practical plans and actions required to close any gaps and achieve their potential.”
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A partnership with Mazars reduces the complexity of managing your business, and helps you make the right decisions that improve performance, drive growth and enhance shareholder value. But don’t just listen to us – let our clients share their experience with you.
Detailed Information on Optimize
At Mazars we have experienced first-hand what it takes to build a successful business by working extensively with entrepreneurial businesses.
Optimize Video Series
Key professionals involved in the Mazars Optimize programme, speaking of the challenges currently facing entrepreneurial businesses in today’s environment and the benefits of using the Optimize approach.