Risk is a natural part of business. Being able to mitigate risks is how businesses thrive and maintain profitability.

Small business benchmarks help you to identify potential risks that can impact your business.

Comparing your performance to other companies in your industry can help you determine whether operating expenses, insufficient sales, unpaid invoices and other factors are affecting your ability to generate profits in line with the rest of your industry.

Small Business Benchmarks

The Australian Taxation Office (ATO) publishes small business benchmarks to help small business owners understand how their performance compares to other businesses in the same industry.

“We want small businesses to stay afloat, so our benchmarks are a great way to ensure your business is viable, competitive and not at risk of venturing into rough water”.
– Peter Holt, Assistant Commissioner for Small Business at the Australian Taxation Office.

The ATO uses data from tax returns and activity statements to provide an average benchmark range for over 100 industries. These financial ratios make it easy for you to compare your business performance to other companies in your industry.

Accessing ATO Benchmarking Data

ATO benchmarking data can be accessed on the ATO website or through the ATO app.

To compare your business to the industry benchmarks, you will need details about your business, including gross business income and cost of sales.

You can use the checklist on the ATO website to ensure you have everything you need to perform a comparison.

Using the ATO App
The fastest way to compare your business is to use the ATO app. The business performance check tool will automatically calculate your comparison to the industry benchmarks.

The ATO app can be downloaded for free and is available on both Google Play and Apple App Store.

After downloading the app, select ‘Business’ from the menu, and then ‘Business Performance Check’.

Enter your business information into the required fields, and the tool will automatically calculate how your performance compares to other businesses in your industry.

Using the ATO Website
You can also manually check small business benchmarks using the ATO website.

Navigate to the ATO Small Business Benchmarks website.

Click on ‘In detail’ in the left-hand menu:

How to use ATO Small Business Benchmarks website

You can search the database by using the ‘Benchmarks A-Z’ or the ‘Benchmarks by industry’ option.

How to us the ATO Small Business Benchmark website

After selecting your industry, you’ll see a page containing the key benchmark ranges.

How to use the ATO Small Business Benchmark website

How to Manually Compare Your Business Performance to the Industry Benchmark

To manually compare your business, you’ll need to calculate the cost of sales to turnover and total expenses to turnover for your business.

Cost of Sales to Turnover
Cost of sales is the total cost of the goods produced or services provided by your business.

To calculate the cost of sales to turnover, you need to divide your cost of sales by turnover and multiply that figure by 100.

Example:
Cost of sales = $184,672

Turnover = $482,384

$184,672 ÷ $482,384 = 0.3828

0.3828 x 100 = 38.28%

Total Expenses to Turnover
Total expenses are the expenses filed on your tax return, minus any payments to yourself or any associated parties.

Expenses = $482,384

Payments to associate = $50,000

$482,384 − $50,000 = $432,384 Total Expenses

To calculate the total expenses to turnover, you need to divide your total expenses by turnover and multiply that figure by 100.

Example:
Turnover = $496,774

Total expenses = $432,384

$432,384 ÷ $496,774 = 0.8703

0.8703 x 100 = 87.03%

After completing these calculations, you can compare your business performance to the small business benchmarks for your industry.

How to Use Small Business Benchmarks to Identify Risks

You may find that your performance is above or below the range in your industry. There are several reasons why this can happen.

Above the Benchmark

If your figures above the industry benchmark range, it indicates that your expenses are high in relation to your sales.

This could be due to:

Inefficiency – Your business operations are less efficient than other businesses in your industry.

Low Volume of Sales – You could be making too few sales in comparison to rental costs or the number of employed staff.

High-Cost Business Inputs – You could be paying more for business expenses than your competitors.

Low Mark Up – Your competitors could be charging more per average sale price.

Below the Benchmark

If your figures are below the industry benchmark range, it indicates that your expenses are low in relation to your sales.

This could be due to:

Errors in Recording Expenses – Mistakes when recording salary, cash wages, etc.

High Mark Up – You charge more per average sale price than your competitors.

High Efficiency – Your business operations are more efficient than your competitors.

If your business is outside of the industry benchmark range by a significant margin, you should investigate why.

Comparing your business to the industry benchmark range is an important health check for your business finances. You should regularly check to see how your business is performing compared to other companies in your industry.

Financing Your Business

If your business is operating above the industry benchmark range, you need to understand why and take action to bring the company into a more profitable range.

For example, if you are currently working with outdated equipment or machinery, that could be contributing to inefficiency and impacting business performance.

There are plenty of financing options businesses can access to provide a cash injection and become more competitive.

Rather than using your cash reserves and putting your business at risk should an unexpected expense occur, business financing enables you to spread the cost of any investment and pay off the borrowed amount in affordable regular payments.

We provide a range of business finance solutions to help companies access the funding they need to grow and innovate.

Invoice Finance

If you have working capital tied up in unpaid invoices, you can use those invoices to access immediate funding.

Trade Finance

Increasing purchasing power can be a key catalyst for growth. Access the trade finance you need to capitalise on new opportunities.

Asset Finance

Leverage your existing capital to access a line of credit or fund up to 100% of the cost of new equipment. Cash tied up in machinery and equipment can be utilised to make your business more competitive.

Buying an Existing Business

If you are considering buying an existing business in Australia, benchmarking is a crucial part of your due diligence.

By benchmarking a business opportunity against the average industry range, you can see how well the company is performing in comparison to competitors.

This information is vital for determining if the business is successful and if the purchase price offers value for money.

If the business you are interested in is significantly outside of the industry benchmark, it’s a warning sign that you want to investigate before finalising a purchase.