Using benchmarks to strengthen your business

A company that plans the following guidelines and benchmarks into its business – and makes them happen – will always succeed, particularly when coming up against those that don’t.

Breakeven point

Breakeven consists of fixed costs divided by gross margin. The strength of a business can be calculated on a scale of breakeven points:

• Above 90% = suicidal
• From 80% to 90% = vulnerable
• From 70% to 80% = strong
• Less than 70% = exceptionally strong.

The first rule, therefore, is to ensure that your business can make money at well below full capacity.

Cash flow

Besides profitability, the other main consideration is cash flow. To get this right you need to:

• invoice and get paid as quickly as possible
• minimise stockholding and fixed assets
• structure the business so that its equity base supports at least half its total funding needs
• ensure that growth in retained profits is fast enough to fund at least half its growing funding needs.

For more information, call 020 7099 2621, email info@tcii.co.uk, or visit www.tcii.co.uk.