Benchmarking Your Business to Success
Posted on 9th July, 2018
Whether you’re a business just starting out or a well-established business, benchmarking is an essential tool to monitor and grow your business. Benchmarking analyses your business performance by making comparisons with similar businesses and industry norms. These comparisons can be made within the company (known as internal benchmarking) or against other companies (external benchmarking).
Measuring your performance against other businesses is an effective way for you to identify any weaknesses that your business may have and implement strategies to strengthen them. Simply looking at profit as the ultimate Key Performance Indicator restricts yourself from identifying how you can achieve more efficiency within your business and produce maximum output.
Take the following simple hypothetical for example.
• You run a café that has $500,000 in turnover and runs a healthy $50,000 profit.
• Wages paid for the year are $170,000. This puts your labour/turnover ratio at 34%, compared to the industry benchmark average of 28%.
• The discussion can then begin, and the strategies implemented. Are there too many staff on? Are staff not working efficiently?
• Let’s assume the business can identify the problems with the wages being paid and bring it down to the 28% industry average. Assuming all other figures remain the same, that would increase your profit by $30,000.
Ultimately, the $50,000 profit is excellent, but this figure in itself isn’t showing you that there are weaknesses in your business that could increase its profitability. Of course, this is just an example and all businesses are different, but it shows that a healthy profit doesn’t equate to efficiency.
Accountants should naturally be constantly internally benchmarking their clients’ businesses to identify any outlier expenses. The days of the accountant simply churning out the numbers for the business owner are well and truly over. Through external benchmarking, accountants add another invaluable service to ensure your business is operating efficiently into the future.
Here at Momenta Advisors, we understand the importance of benchmarking and use it to identify areas of growth in your business and any weaknesses that could be improved.