Small Business Accountant – A One Accountants Melbourne
Are you a small business owner? Do you use small business benchmarking to compare your performance against those of your business competitors in the industry?
The ATO uses these benchmarks as risk indicators while checking business returns, to ensure that businesses are functioning well within the industry norms. For instance, the total expenses to turnover benchmark in Australia for a coffee shop are between the ranges of 88% to 93%. So, if the total expenses to turnover of a business are within those ranges, it would mean that the business is running well within order. If you are above this average – it would suggest that your expenses are higher than industry norms. Adversely, if you are below this range– it would mean your expenses are well below the industry average. Businesses that report numbers that are outside the norm may pique the ATO’s interest.
If you are a new business owner, this financial measure can act as a guide to help you in setting up your business and understanding the industry standards so that you can run your business well. It is not always wrong to be outside the norms – there can be a number of reasons explaining this:
- It is a new business – you are just setting it up, therefore your costs are higher
- You are winding down your business –so you are selling at lower prices to get rid of the stock
- You have higher costs than your competitor – possibly because you are sourcing your materials from a more expensive supplier
So what does it really mean when you are above the benchmarks? As discussed above, your expenses will be higher compared to the sales made. This could be because:
- Your wastage is higher; this is common in the food industry – You will have to observe and adopt the best practices undertaken by your peers
- Your volume of sales is low
- You need to examine the cash controls you have in place
- Not all of your sales have been recorded
- You have been counting personal stock as business stock
On the other hand, if you are below the bench mark, then it suggests that your expenses are much lower than your sales in comparison to the average for your industry. This could be because:
- You have incorrectly recorded your expenses
- You have less wastage than your rivals – high efficiency
- Your mark-up compared to your rivals is high
Benchmarking can help your business to keep its costs in line with your rivals to survive in this competitive landscape. You may not be doing anything wrong if your numbers are way off the benchmark, however, returns filed with off profit margins and expenses are likely to catch the attention of the ATO. Therefore, is important for you as a small business owner to see if you are outside the benchmark and if so, why?