Small Business Benchmarks: What They Are and Why They Matter

Running a small business involves wearing many hats—managing operations, marketing, staff, and finances. One of the most valuable tools to help keep your business on track is something many small business owners overlook.

What Are Small Business Benchmarks?

Small business benchmarks are performance metrics that help you compare your business’s financial and operational health to others in the same industry. They provide a reference point for key indicators such as:

• Cost of goods sold (COGS)
• Gross profit margin
• Wages as a percentage of turnover
• Net profit margin
• Stock turnover or inventory days
• Debtor and creditor days

Benchmarks are especially useful for identifying trends, setting realistic goals, and pinpointing areas that need improvement.

Where Do Benchmarks Come From?

In Australia, the Australian Taxation Office (ATO) publishes small business benchmarks based on tax returns and activity statements from thousands of businesses across different industries. These figures are grouped by business type and turnover range, giving you insight into what’s typical for your industry.

Other sources include industry associations, market research firms, and professional advisers like accountants and financial planners.

Why Benchmarks Matter

1. Measure Business Health
   Benchmarks let you see how your business compares to others in your industry. If your expenses are much higher than the benchmark, it could be a sign you need to investigate further.
2. Identify Red Flags
   Falling outside the benchmark range could indicate inefficiencies, potential cash flow problems, or even areas where you’re overspending.
3. Improve Decision-Making
   By understanding how your performance compares, you can make better decisions around pricing, staffing, and resource allocation.
4. ATO Compliance
   The ATO uses benchmarks to identify businesses that might not be reporting all their income. If your figures fall outside the benchmark range without good reason, it could attract closer scrutiny.
5. Support Business Planning
   Benchmarks are valuable when creating business plans, applying for finance, or preparing for a sale or expansion. They provide realistic targets and help back up your projections.

Example: Café Business Benchmark

Let’s say you own a small café with annual turnover of $500,000. The ATO benchmark for cafés of your size might show:

• Cost of goods sold: 30%–40%
• Wages: 25%–35%
• Net profit margin: 5%–10%

If your wages are at 45%, this could indicate overstaffing or inefficiencies in rostering, prompting you to explore changes in scheduling or training.

How to Use Benchmarks in Your Business

1. Access Relevant Benchmarks
   Visit the ATO’s Small Business Benchmarks tool or speak with your accountant to get data tailored to your industry.
2. Compare Regularly
   Review your performance quarterly or annually. Don’t wait until tax time to spot problems.
3. Look Beyond the Numbers
   While numbers are helpful, also consider qualitative factors like customer satisfaction, staff morale, and market trends.
4. Set Realistic Goals
   Use benchmark data to set achievable performance targets based on what’s typical in your industry.
5. Get Expert Advice
   A financial adviser or accountant can help interpret benchmark data and translate it into actionable strategies.

Final Thoughts

Small business benchmarks are more than just numbers—they’re a roadmap for performance and sustainability. By comparing your business to others in your industry, you gain clarity, confidence, and control over your financial future. Whether you’re aiming to grow, improve efficiency, or simply stay compliant, benchmarks can be a powerful ally.

For more information contact one of our accountants.

Source: ato.gov.au