A BODYBUILDER AND AN ACCOUNTANT WALK IN TO A BAR
I caught up with a long-time friend of mine recently, we sat at a table and ordered a soda water and started catching up on what had been happening in the last couple of months.
We covered the usual topics, families are both good, work is busy, looking forward to a holiday and then he mentioned that he had just competed in a bodybuilding competition.
My mate had always been into his fitness but this was taking it to another level. When I asked him why his answer stuck with me.
He said, “I know that I enjoy the gym and I feel like I'm making gains, but until I get up on stage with competitors there’s no way I know objectively how I am going.”
Most business owners have a gut feeling for how well their business is doing. They look at their bank balance or the profit figure in their accounting software and get a warm fuzzy feeling (or cold sweat). But is that good enough?
Your profit figure and bank balance are very subjective. If your business is making a million dollars in profit but your direct comparable competitor is making 15% more, then something is not right.
The best business owners don’t just trust their gut. They performance benchmark.
What is performance benchmarking?
Performance benchmarking measures a business’s financial performance, or KPIs, against industry competitors. This includes analysing profits, cost of goods sold, business value, and revenue/expenses. It is used as a way to identify performance gaps and growth opportunities.
Performance benchmarking should reflect the industry the business is in to ensure the results are valuable. For example, businesses working in retail would compare the cost of goods sold with competitors. Whereas professional services would benchmark areas such as owner’s earnings.
How is it used?
Performance benchmarking should be used annually to establish corporate goals and strategies. Thus, companies that discover they are below the industry average for profit margins can implement strategies to lift these results. Further, businesses can compare productivity with profitability, to review areas such as net profit per working owner and determine the top performers within a team and/or business.
Knowing the industry averages means business owners can set realistic goals and focus their resources on the areas of the highest value.
How do you performance benchmark?
When undertaking performance benchmarking, it is vital the business is measured against competitors within the same industry of similar size and location. This gives a true reflection of the business’s position. The number of competitors is also important, as small sample sizes can skew the data to show false positive or negative results. Businesses should also be strategic about which KPIs they want to benchmark/assess. Reviewing the most relevant metrics will give business owners the ability to make confident decisions.
Gathering all this data can be difficult due to competitors not wanting to share financial records. Whilst there are high-level records on ABS databases, the best way to compare a business is with detailed business data.
That’s where we come in. Our benchmarking tool can compare your business against hundreds to thousands of like businesses, including ATO small business benchmarking data, to give you the most accurate results.
The best body builders require a trainer. So too do the best business owners require an accounting business advisor.
To benchmark against your competitors, talk to us about our Business Success Services.