Mazar’s analysis of 72,011 companies found 51% have a severe lack of liquidity which would force them to turn to external sources of funding, in the event of an unexpected drop-off in trading.
Mazars researchers analysed mid-sized businesses in the EU28 over a four-year period looking at business models, performance, management decisions and business environments.
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.
Three other key findings
Among the other key findings business model was found to be the clearest determinant of success: the best performing Intellectual Property (IP) owners are twice as profitable as Retail and Distribution companies.
Top tier IP-owning companies 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.
Analysis showed the impact of the right interventions on business performance can improve dramatically over a short period with 49% of the poorest performing companies able to move up to the middle or top tiers within four years.
Interestingly researchers also found little variation by country of origin instead management decisions had a far greater impact on business success than local economic conditions.
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 EU 28 companies with a turnover of between €10m and €200m. Businesses were split by model 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.