Measure your business
Measure your business using the ATO benchmarks
Every time I watch sport I am continually being bombarded with stats, e.g. this team is fourth in attack and seventh in defence. Athletes and teams in all sports are continually benchmarking their performance against their competitors. They are always looking for that competitive advantage over their rivals. Business is similar to sport in many ways. We are always trying to get that competitive advantage for our business. But how often do we ever benchmark our business against others in our industry.
The ATO have developed and published small business benchmarks to discourage businesses from failing to disclose their cash income. However, we can use these benchmarks as another tool to improve our business performance. The number of benchmarks published by the ATO is limited however the large number of businesses from which the data was collected gives the data validity. The benchmarks may provide us with some useful information to increase the performance of our business. Below I have set out 5 easy steps on how to benchmark your business.
Every time I watch sport I am continually being bombarded with stats, e.g. this team is fourth in attack and seventh in defence. Athletes and teams in all sports are continually benchmarking their performance against their competitors. They are always looking for that competitive advantage over their rivals. Business is similar to sport in many ways. We are always trying to get that competitive advantage for our business. But how often do we ever benchmark our business against others in our industry.
The ATO have developed and published small business benchmarks to discourage businesses from failing to disclose their cash income. However, we can use these benchmarks as another tool to improve our business performance. The number of benchmarks published by the ATO is limited however the large number of businesses from which the data was collected gives the data validity. The benchmarks may provide us with some useful information to increase the performance of our business. Below I have set out 5 easy steps on how to benchmark your business.
Step 1
Go to the ATO small business benchmarks webpage here and find your industry. For this example I am using a medium sized business in carpentry services under the Building & construction trade services category.
Step 2
Open our excel spreadsheet to help analyse the data here.
Step 3
Enter ATO ranges into the spreadsheet. The first benchmark is the labour/turnover ratio. Enter the lower end of the range of the benchmark in C10, in this example I enter 12. Enter the higher end of the range in D10, in this example is 26. The other benchmark is the cost of materials/turnover ratio. Enter the lower end of the range of the benchmark in C9, in this example is 21. Enter the higher end of the range in D9, in this example is 41.
Step 4
Enter financial data from your latest profit & loss statement (preferably 2009/10 financial year). Please note when entering wages do not enter any of the owners wages or salaries.
Step 5 Analyse your results.
Above the ATO range
Ratios that are above the ATO range show that your costs as a percentage of sales are higher than most other businesses in your industry. You will need to investigate further for possible causes. In this example, labour costs are above the ATO range. I would investigate the reason for this discrepancy straight away.
Below the ATO range
If your ratio is below the ATO range then your costs as a percentage of sales are lower than most other businesses in your industry. In this situation I would also be looking at the overall profitability of the business. If the business is not highly profitable then there are other areas that may need to be addressed to increase your profitability.
In the ATO range
The majority of businesses will fall in the ATO range. The closer your ratio is to the lower end of the range, the better your business is doing compared to other businesses in your industry. If your ratios are in the upper half of the ATO range then further investigation may be beneficial to improve your business's financial performance. In this example, the cost of materials is at the lower end of the range which is a good result.
The ATO small business benchmarks are not comprehensive and should not be used in isolation to make decisions regarding your business. However, the five minutes it takes to review your business's performance against industry standards may provide some valuable insight into your business and how it is performing compared to similar businesses.
Beyond the Numbers offers a number of services to improve your business's financial performance including benchmarking and business performance reviews.
Step 2
Open our excel spreadsheet to help analyse the data here.
Step 3
Enter ATO ranges into the spreadsheet. The first benchmark is the labour/turnover ratio. Enter the lower end of the range of the benchmark in C10, in this example I enter 12. Enter the higher end of the range in D10, in this example is 26. The other benchmark is the cost of materials/turnover ratio. Enter the lower end of the range of the benchmark in C9, in this example is 21. Enter the higher end of the range in D9, in this example is 41.
Step 4
Enter financial data from your latest profit & loss statement (preferably 2009/10 financial year). Please note when entering wages do not enter any of the owners wages or salaries.
Step 5 Analyse your results.
Above the ATO range
Ratios that are above the ATO range show that your costs as a percentage of sales are higher than most other businesses in your industry. You will need to investigate further for possible causes. In this example, labour costs are above the ATO range. I would investigate the reason for this discrepancy straight away.
Below the ATO range
If your ratio is below the ATO range then your costs as a percentage of sales are lower than most other businesses in your industry. In this situation I would also be looking at the overall profitability of the business. If the business is not highly profitable then there are other areas that may need to be addressed to increase your profitability.
In the ATO range
The majority of businesses will fall in the ATO range. The closer your ratio is to the lower end of the range, the better your business is doing compared to other businesses in your industry. If your ratios are in the upper half of the ATO range then further investigation may be beneficial to improve your business's financial performance. In this example, the cost of materials is at the lower end of the range which is a good result.
The ATO small business benchmarks are not comprehensive and should not be used in isolation to make decisions regarding your business. However, the five minutes it takes to review your business's performance against industry standards may provide some valuable insight into your business and how it is performing compared to similar businesses.
Beyond the Numbers offers a number of services to improve your business's financial performance including benchmarking and business performance reviews.
Phone: 0434 972438
E-mail:info@beyondthenumbers.com.au
Business Advisors
Located in Brisbane, Queensland
Copyright 2010 Beyond the Numbers
Important Links
ATO Industry Benchmarks
BTN Benchmarking Spreadsheet
ATO Industry Benchmarks
BTN Benchmarking Spreadsheet
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