Benchmarking is a comparison of a business’ operating Key Performance Indicators (KPIs) and financial ratios with best practice and average performance data relating to similar businesses. The utilisation of benchmarking tool is an integral part of an accountant supplying a business advisory service to his/her business clients. It’s very difficult for small businesses to find authentic data against which to compare their performance to that of their peers, as this information is generally not known or released. An accounting/advisory firm can assist the small business operator to effectively “drill down” into their figures by arranging full, credible benchmark comparisons, to be compared to the small/medium enterprise’s business. This will allow the calculation of a number of key indicators, including:

• revenue generated per full time equivalent employee;
• gross profit percentage;
• labour to turnover percentage;
• net profit percentage to turnover; and
• other key operating figures.

Benchmarking can also be undertaken through a wide range of other business activities, including:

• leadership;
• market;
• people;
• empowerment;
• service to customers;
• process management; and
• adoption of innovation.

Benchmarking is not new to businesses. Other activities such as sport have been doing “benchmarking” for hundreds of years. Cricketers have been calculating benchmarks since the game started. In fact, one of the great joys of following cricket is the understanding of the run-rates, highset score, batting averages score in first test, number of wickets taken, bowling averages, etc. Sportsmen readily identify with PB (Personal Best). Businesses have much to gain by adopting the similar relationship with benchmarks as sportspersons do. Analysing benchmarks is a great way for an accountant/adviser to have a clear understanding of what is occurring in their client’s business and then be able to suggest realistic strategies to improve the performance of a business. This is proactive business advisory services for clients.                  

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Episode 017 Benchmarking

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