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  • What it means to be outside the benchmark range

    Your benchmark figure might be above or below the benchmark range for your turnover level. There could be a number of reasons why this is the case, including that you:

    • are starting up or winding down your business
    • have higher costs or lower selling prices than your competitors
    • have incorrect entries on your tax return, for example, paying salary and wages to directors or associates.

    When we see a business significantly outside the key benchmark range for their industry, it doesn't necessarily mean they have done anything wrong. But it does indicate something is unusual and may prompt us to contact them for further information.

    On this page:

    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 – use our estimate guide
    • 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 78–88% for businesses in his industry with turnover of more than $600,000.

    Expenses comparison timeline - shows above benchmark range

    Tax return

    Key benchmark range

    Annual turnover range

    $50,000 – $150,000

    $150,001 – $600,000

    More than $600,000

    Total expenses/turnover

    50% – 66%

    63% – 76%

    78% – 88%

    Average total expenses

    58%

    69%

    83%

    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 may be recorded under the wrong label – you may have incorrectly classified expenses for 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 50–59% for similar businesses in this industry.

    Costs of goods sold comparison timeline - shows below benchmark range

    Tax return

    Key benchmark range

    Annual turnover range

    $65,000 – $150,000

    $150,001 –$600,000

    More than $600,000

    Cost of sales/turnover

    43% – 54%

    50% – 59%

    50% – 56%

    Average cost of sales

    48%

    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, and sees that her ability to source stock at lower prices (and then sell her shoes at a greater profit than similar businesses) has resulted in her current benchmark range.

    She makes sure she has all the necessary records to support her business transactions, such as evidence of the cost of her stock and her sale prices.

    End of example

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    Last modified: 29 Apr 2021QC 47939