What is the difference between margin and mark-up?

They are calculated from different bases, and confusing them costs money on every sale. If an item costs you £60 and you sell it for £100, your gross margin is £40 ÷ £100 = 40%. Your mark-up is £40 ÷ £60 = 66.7%. Add 40% to a £60 cost and you charge £84, not £100 — a £16 shortfall each time, enough to turn a profitable job into a break-even one. To hit a target margin, divide the cost by one minus the margin: £60 ÷ 0.60 = £100. Price from margin, and check which of the two your quoting spreadsheet is actually using.

What counts as a fixed cost for the break-even calculation?

A fixed cost is one that does not move with sales volume in the short term: rent, insurance, software subscriptions, salaried staff, accountancy fees, loan repayments, and your own drawings if you take a set amount. Direct costs rise and fall with the work — materials, subcontractors, delivery, card processing fees. The awkward ones sit in between. Part-time staff whose hours flex with demand behave like a direct cost; a van lease behaves like a fixed cost even in a quiet month. When in doubt, treat it as fixed. That makes your break-even figure slightly conservative, which is the direction you want to be wrong in.

My accounts show a profit but my bank account is empty. Where has it gone?

Almost always into one of five places. Unpaid customer invoices, which count as income the day you raise them but arrive as cash weeks later. Stock or work in progress, where the cash left before the sale happened. Tax owed but not yet paid, sitting in the bank looking like yours until the VAT or corporation tax deadline. Capital purchases, where a £12,000 van leaves the bank now but reaches the profit and loss account gradually as depreciation. And drawings or dividends, which reduce cash without ever appearing as a cost. Lay out the thirteen-week cash view and the gap usually explains itself within an hour.

Is a 40% gross margin good?

Only relative to your own cost base and your own trend. Forty per cent is comfortable for a service business with modest overheads and thin for one carrying premises, vehicles and stock. What matters is whether the margin covers your fixed costs with room left over, which is exactly what break-even measures: at £10,000 of monthly fixed costs, a 40% margin needs £25,000 of sales and a 25% margin needs £40,000 for the same profit of nothing. The more useful comparison is against yourself. A margin drifting down three months running is a real signal whatever the absolute number happens to be.

Is my accounting software not already telling me this?

It holds the raw material, and for cash position and aged debtors it will show you the answer directly. Margin, break-even and the fully-loaded cost of a hire are different. The software knows your revenue and your costs, but not which of them you treat as fixed, which are direct, or what a new role would really cost once National Insurance, pension and ramp-up are counted. That judgement is what turns a report into a decision. The gap is rarely data. It is that nobody has sat down with the data and asked what it means for the next three months.

How much history do I need before these numbers mean anything?

Twelve months, so you can see seasonality rather than one unusual quarter. Margin and break-even worked out from a single month will mislead you if that month carried an annual insurance premium or an unusually large job. Calculate them for each of the last twelve months, put them in a row, and read the shape rather than the latest figure. Debtor days deserve the same treatment, because one slow-paying customer can move a single month by a week. Once you have twelve points the monthly check becomes quick, because you are comparing against your own established pattern rather than guessing.

Five Numbers Every Business Owner Should Track

Plenty of owners know roughly what profit they made last year, because their accountant told them so, months after the year actually ended. Fewer could tell you, right now, whether the business is in good shape today. That gap — between knowing what happened and knowing what is happening — is where a lot of otherwise good businesses get into trouble. You do not need to become a finance expert to close it. You need five numbers, checked on a rhythm, not once a year when the accounts are filed.

Everything below can be worked out from figures you already have. None of it needs a new system, and all of the arithmetic is deliberately shown so you can run it on your own business this week.

1. Profit margin

Turnover is vanity, margin is sanity. A business turning over £500,000 at a 5% net margin makes £25,000. One turning over £300,000 at 15% makes £45,000 — almost twice as much profit on 40% less work. Track both gross margin (what is left after direct costs) and net margin (what is left after everything).

How to work it out: Gross margin % = (Revenue − Direct costs) ÷ Revenue × 100. Net margin % = Net profit ÷ Revenue × 100.

Illustrative figures. A contractor invoices £40,000 in a month. Materials and subcontractors cost £24,000, so gross profit is £16,000 and gross margin is 40%. Overheads — van, insurance, office, his own salary — take £13,000, leaving £3,000 of net profit and a net margin of 7.5%. Now suppose material prices rise and the same £40,000 of work costs £26,000 to deliver. Gross margin falls to 35%, net profit halves to £1,000, and net margin drops to 2.5%. A five-point slip in gross margin took two thirds of the profit. That is why margin gets watched monthly and not annually: by the time year-end accounts land, twelve of those months have already happened.

2. Cash position

Profit and cash are not the same thing, and it is the businesses that confuse the two that get caught out. You can be profitable on paper and still run out of money, because cash is tied up in stock, in unpaid invoices, or in a tax bill landing in the wrong week.

How to work it out: Start with today's bank balance, then lay out expected receipts and payments week by week for the next thirteen weeks — invoices due in, wages, VAT, PAYE, rent, loan repayments, supplier payments. Thirteen weeks is the useful horizon because it is long enough to catch a quarterly VAT payment and short enough that you can still do something about a gap.

Illustrative figures. A business opens the quarter with £18,000 in the bank and expects £62,000 in and £55,000 out over thirteen weeks. That looks comfortable. Plot it weekly and week seven shows a £9,000 VAT payment landing four days before a £14,000 customer receipt, taking the balance to minus £3,200 for those four days. The annual picture was fine. The week was not. You cannot see that on a profit and loss account, and you cannot fix it the morning it happens.

3. Aged debtors

Money you are owed is not money you have. An aged debtor report shows who owes you what and how long it has been outstanding, grouped into 0–30, 31–60, 61–90 and 90+ day buckets. The single number to pull out of it is debtor days, sometimes called days sales outstanding — how long, on average, your invoices actually take to get paid.

How to work it out: Debtor days = Total owed to you ÷ Annual sales × 365.

Illustrative figures. A business turning over £480,000 a year is owed £59,000. Debtor days = £59,000 ÷ £480,000 × 365 = 45 days. Its invoices say 30 days, so it is running fifteen days adrift. Every day of that gap is worth £480,000 ÷ 365 = £1,315 of cash. Pulling debtor days from 45 back to 30 releases 15 × £1,315 = £19,726 — a one-off cash injection larger than most overdrafts, at no cost, from money that is already yours. It usually comes from process rather than confrontation: invoice on completion instead of month-end, state the due date rather than "30 days", set up a card or direct debit payment route, and chase at day 31 automatically rather than at day 60 apologetically.

4. Break-even point

Your break-even point is the turnover you need each month just to cover costs before you make a penny of profit. It is one of the most useful numbers in the business because it tells you instantly how much headroom you have. A quiet month is only a problem if it takes you below break-even, and you cannot know that unless you know the number.

How to work it out: Break-even revenue = Fixed costs ÷ Gross margin %.

Illustrative figures. Fixed costs of £10,000 a month at a 40% gross margin means you need £25,000 of revenue that month to stand still. Two things move that line, and both move it more than owners expect. Take on someone at £2,000 a month all-in and fixed costs rise to £12,000, so break-even rises to £30,000 — you need £5,000 of extra sales every month to pay for a £2,000 hire. Let gross margin slip from 40% to 35% and the original £10,000 of fixed costs now needs £28,571 of revenue. Discounting your way out of a quiet month raises the bar you are trying to clear.

5. The fully-loaded cost of a hire

The salary is the easy part. The real cost includes employer's National Insurance, pension contributions, equipment, recruitment and the ramp-up period before someone is fully productive. Owners who budget only for the headline salary are often surprised, three months in, at how little headroom they have left.

How to work it out, using the 2026/27 rates: employer's Class 1 National Insurance is 15% of earnings above the £5,000 secondary threshold. The minimum automatic enrolment employer pension contribution is 3% of qualifying earnings, which are earnings between £6,240 and £50,270.

Illustrative figures. You hire someone on £32,000.

Salary — £32,000
Employer's NI — 15% × (£32,000 − £5,000) = £4,050
Employer pension — 3% × (£32,000 − £6,240) = £773
Laptop, phone, recruitment — £1,500 in year one

Year-one cost: £38,323, or 19.8% above the headline salary. Then add ramp-up. If they are at half productivity for their first three months, that is roughly another £4,800 of cost carried against output you have not had yet. Against a 40% gross margin, the extra sales needed to cover a £38,323 hire are £38,323 ÷ 0.40 = £95,808 in the first year.

One offset is worth knowing: the Employment Allowance is £10,500 for 2026/27 and can be set against your employer's NI bill. It is not available to every employer — a limited company whose only employee is a single director cannot claim it — so confirm your position before you rely on it in a budget.

Putting the five together

Individually these are just ratios. Together they answer the question owners actually ask, which is "can I afford this?" Take the business above: £10,000 of fixed costs, 40% gross margin, £25,000 break-even, 45 debtor days on £480,000 of sales. It is considering the £32,000 hire.

Spread across the year, the £38,323 adds £3,194 a month to fixed costs, taking them to £13,194 — so break-even goes from £25,000 to £32,985 a month. That is the real question in front of the owner: not "can I pay £32,000", but "can I sell another £8,000 a month, every month". Thirteen-week cash shows whether it can carry the first three months of half-productivity. And getting debtor days down to 30 first releases £19,726 — which is most of the first year's cost, found inside the business rather than borrowed. That sequence, in that order, is the difference between a hire that works and a hire that quietly puts you under.

How often should you actually check these?

You do not need to stare at all five every day; that is a fast route to overreacting to normal week-to-week noise. A realistic rhythm is cash position weekly, because it changes fastest and matters most when things go wrong; aged debtors fortnightly, so chasing stays proactive rather than becoming a monthly scramble; and margin, break-even and the cost of any planned hire reviewed monthly alongside your management accounts. Recalculate break-even whenever fixed costs or prices move, not on a schedule — that is the number most often left stale after a rent rise or a pay review.

Seeing this monthly, not once a year

Year-end accounts tell you what happened. Management accounts tell you what is happening, which is the only version of that information you can actually act on. If you are finding out how the business performed nine or ten months after the fact, that is not a small gap — it is most of a year spent flying without instruments.

This is why we build regular reporting into how we work with clients, keeping these five numbers, and the ones specific to your business, in front of you every month or quarter. If cash timing is the part that worries you, cashflow and budgeting is where that gets modelled properly; if it is the decisions the numbers feed into, that sits with advisory. To talk through which of those actually fits, get in touch and we will set out how it works and what it costs.

Five numbers every business owner should track