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  • What it means to be outside the benchmark range

    Your benchmark figure might be above, below or inside the benchmark range for your turnover level. Possible reasons for this are explained below.

    When we see a business significantly outside the key benchmark range, it doesn't always mean they have done anything wrong. But it does indicate something is unusual and we may contact them for more information.

    On this page

    Reporting inside the benchmark range

    If your business is reporting inside the benchmark range for your industry, you:

    • don't need to do anything else
    • can identify where adjustments can be made to costs and expenses and consider profit margins to improve your business performance
    • can consider if your record keeping or business operations need any improvement to increase profitability and performance.

    Reporting above a benchmark range

    If your business is reporting above the benchmarks, it means your expenses are high relative to your sales.

    This may indicate that your:

    • wastage is higher – research best practice for your industry
    • goods taken for personal use have been counted as business stock – find out more about using trading stock for private purposes
    • competitors may be able to source inputs at lower cost than you – it might be time to see if you can buy stock or materials at a lower rate
    • volume of sales is too low considering your rent or labour costs – for example, having too many staff during off-peak times
    • mark-up is lower than your competitors – check average sales prices
    • sales are not completely recorded – check till tapes or point-of-sale (POS) reports
    • internal cash controls may need to be examined – ensure cash taken for expenses is recorded as sales.

    Example: Business above the benchmark

    Robert operates a plumbing services business with an annual turnover of $704,500. He decides to see how his business is performing compared to similar businesses in the plumbing services industry.

    Robert's tax return figures are as follows:

    Total business income

    $704,500

    Payments to contractors

    $285,000

    Salary, wages and superannuation

    (including $240,000 of his own salary and superannuation)

    $260,000

    Motor vehicle

    $15,000

    Depreciation

    $5,650

    Purchases

    $35,000

    Other expenses

    $245,000

    Robert enters his tax return figures into the Business performance check tool. The result for his total expenses/turnover key benchmark range is 120%. This is above the benchmark range of 79–89% for businesses in his industry with turnover of more than $600,000.

    Expenses comparison timeline - shows above benchmark range

    Key benchmarks

    Annual turnover range

    $50,000–$150,000

    $150,001–$600,000

    More than $600,000

    'Total expenses' divided by 'Annual turnover'

    52% to 68%

    64% to 78%

    79% to 89%

    Average total expenses

    60%

    71%

    84%

    Robert checks his records of business income and expenses. He realises that he accidentally included the wages and superannuation he paid to himself in the calculation. These should have been reported separately on his tax return.

    Making sure he excludes this amount, Robert re-enters the figures into the Business performance check tool. His new key benchmark range is 85.96%. This is within the key benchmark range for his industry.

    Robert lodges an amended tax return to correctly report the wages and superannuation he paid to himself.

    End of example

    Reporting below a benchmark range

    If your business is reporting below the benchmarks, it means your expenses are low relative to sales.

    This may indicate that:

    • your expenses are recorded under the wrong label – for example, cost of goods sold under another expense label
    • some of your expenses may not have been recorded – for example, salary, wages or cash wages
    • your mark-up is higher than your competitors
    • you are more efficient – for example, you have less wastage.

    Example: Business below the benchmark

    Belinda operates a designer footwear retail business with an annual turnover of $230,000. She decides to see how her business is performing compared to similar businesses in the footwear retailing industry.

     Belinda's tax return figures are as follows:

    Total business income

    $230,000

    Cost of sales

    $92,000

    Salary, wages and superannuation

    $40,000

    Payments to associates (including superannuation)

    $20,000

    Motor vehicle

    $2,000

    Depreciation

    $4,000

    Rent

    $24,000

    Other expenses

    $8,000

    Belinda enters her tax return figures into the Business performance check tool. The result for her cost of sales/turnover key benchmark range is 40%. This is below the benchmark range of 50–58% for similar businesses in this industry.

    Costs of goods sold comparison timeline - shows below benchmark range

    Key benchmarks

    Annual turnover range

    $65,000–$180,000

    $180,001–$600,000

    More than $600,000

    'Cost of sales' divided by 'Annual turnover'

    44% to 55%

    50% to 58%

    50% to 56%

    Average cost of sales

    50%

    54%

    53%

    Belinda checks her records and is confident that she has reported her income and expenses correctly. However, she wants to ensure she can explain and support why her business is reporting below the small business benchmarks for her industry.

    She reviews the costs of sales for her business. She sees that her ability to source stock at lower prices (and then sell shoes at a greater profit than similar businesses) has resulted in her current benchmark range.

    She collects the necessary records to support her business transactions, such as evidence of the cost of her stock and her sale prices.

    End of example
    Last modified: 21 Apr 2022QC 47939