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Business Benchmarks

Dec 14, 2012

Benchmarks can refer to a couple different things. Typically when we think of benchmarks, it is in relation to either the industry a business competes in, or it could be internal goals that the company has set for itself.  Internal goals are often set by management (perhaps in collaboration with staff) and can be measured in a number of ways such as sales growth, sales per employee or per square foot, hours billed, and so on.  Then the business would track these monthly or quarterly to measure progress.  I’ve even known businesses that use these as a means to award bonuses!


External benchmarks are often monitored using various financial ratios.  Industry comparisons can be found in trade associations or other national sources that compile these numbers.  One that banks typically use is RMA, or the Risk Management Association, which tracks many ratios such as liquidity ratios (Current, Quick), profitability ratios (Gross and Net Margins), efficiency ratios (Return on assets, Return on Investment), and working capital cycle ratios (Inventory Turnover, Accounts Receivable Turnover, Accounts Payable Turnover).  These are just a few that could be monitored.  Each business must decide which are important to them.  For instance if you are a cash only business, accounts receivable turnover would not make sense.


Of course the first step is to know where you stand currently.  Having accurate and timely financial data for your business is critical.  If you are looking for benchmarks for your business and you belong to a trade association, start there.  If they don’t collect or provide that information, ask your bank if they can help you.  If not, contact the Small Business Development Center in your area and we would be happy to assist in locating comparison data and setting up a system to monitor your progress.


How is your business performing against your internal or industry benchmarks?

Tags: benchmarks
Category: Business Planning

Bruce Morse

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