What You Need To Know About Business Benchmarks

Jun 16, 2017
Reading Time: 2 minutes
Written by Fiona Lu

While you complete your bookkeeping and tax returns, and begin planning for the new financial year, you should also consider evaluating your business’s performance. If you want to know how your business compares with others in the industry, or whether your costs are too high or profit margins too low, the Australian Taxation Office’s (ATO) latest benchmarks are a helpful guide.

However, if you need help with preparing for the End of Financial Year (EOFY), meeting your tax obligations or compliance with ATO requirements, it will be beneficial to consult with LawPath’s experienced business lawyers.

What Are Business Benchmarks?

Basically, business benchmarks are key financial ratios and calculations that are determined by the ATO drawing information provided by businesses through activity statements and tax returns. They are updated on an annual basis to reflect the performance of more 1.3 million small businesses over time.

If you would like to view the benchmarks applicable to your business, check out the ATO’s benchmarks by industry or benchmarks by business type.

Are There Many Types of Benchmarks?

There are two types of benchmarks relevant to small businesses. First, performance benchmarks. Performance benchmarks are described as financial ranges for your industry. For example, income tax and activity statement. The purpose of financial ranges is to help you work out where you stand compared to other businesses in your industry. Once you determine this, you can make changes accordingly.

Second, input benchmarks. Input benchmarks only apply to tradespeople who are involved in domestic projects and purchase their own materials. Input benchmarks show the amount of income tradespeople make based on the labour and materials they use to complete projects. If you are a tradesperson, you can estimate your turnover and find your benchmark range.

Why Should I Use The ATO’s Business Benchmarks?

Ultimately, business benchmarks are useful tools you can use to analyse your finances and identify potential problems. For example, financial ratios that are extracted from financial statements can be used to compare your business’s performance during different time periods. Moreover, when you collect information about other businesses in your industry, benchmarking will establish averages for key business variables (for example, staff hours, cost of overheads, etc).

It is recommended you refer to these benchmarks if you are interested in learning about industry trends and how competitive other businesses are within your industry. The ATO’s benchmark methodology are statistically valid, and assured by an independent third party.

Also, you can compare your business performance manually by using the ATO’s basic formula, which is (benchmark figure/turnover) x 100 = benchmark percentage. The ATO have examples showing you how benchmarks are calculated.

Conclusion

If you would like to perform a business performance check, the ATO has an app, which makes it quick and easy for small businesses to compare their own operation with industry benchmarks.

If you have any questions about EOFY or improving your business, it is important to consult with a business lawyer who can assist you.

Unsure where to start? Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 700+ expert lawyers or to get answers to your legal questions.

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