Did your business have a great year? Congratulations, give yourself a pat on the back! But could you do better still?
Or maybe your business didn’t do so well, and you’re wondering why? Benchmarking could help you.
External benchmarking is the process of comparing your business against competitors, industry standards, or best practice, in order to assess your performance and identify things you need to improve. It can be an invaluable source of inspiration, insight and assistance if you want to grow or improve your business.
You could compare almost any aspect of your business; how your operations work; the state of your technology; how effective your marketing is; what sort of return you're getting on your investment in the business; these are just a few examples really.
We are concerned in this article with external benchmarking, as opposed to internal benchmarking which involves comparing your business... with itself. Internal benchmarking is often easier to do... but arguably much less insightful.
Benchmarking need not be confined to financial aspects, but the financials are often a good place to start because they can tell us so much about what is going on in a business, in a fairly objective way. For example, a basic financial benchmarking exercise might help you to:
- compare margins in order to understand how profitable your products are, relative to competitors - perhaps revealing efficiency or pricing opportunities;
- assess how effectively you manage working capital;
- analyse your business’s ability to pay the bills and manage economic shocks;
- measure how efficiently the business manages its resources;
- confirm how highly leveraged the business is.
These are just a few examples, but why stop there? Benchmarking need not be confined to the financials. How about benchmarking:
- how you rate on customer service?
- the quality of internal financial control in your business?
- the state of your technology?
- how effective your marketing is?
- your staff productivity?
Ultimately, a benchmarking study could focus on any aspect(s) of your business - as long as the data can be found, almost any subject is legitimate. But it’s probably best to focus on the questions that are going to provide you the most insight and opportunities to improve and develop your business.
There is a range of resources you can use to conduct a benchmarking study. For example, your industry body, professional association, or local authority should be able to provide useful data. And your accountant will be able to provide advice and insights on the data, particularly the financials, to help you identify areas where you can improve and develop.
Ask your friendly Scholes CA adviser today for more about how we can help you benchmark your business.