• What it means to be outside the benchmark

    Your benchmark might be above or below the range for your business turnover in your industry. There could be a number of reasons why this has happened, including:

    • you are only starting up or winding down your business
    • higher costs or lower selling prices than your competitors
    • incorrect entries on your tax return, for example 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 you have done anything wrong. But it does indicate something is unusual and may prompt us to contact you for further information.

    Reporting above a benchmark range

    If your business is reporting above the benchmarks, it means your expenses are high relative to 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 (for rent and possibly labour) – for example too many staff during off peak times
    • mark-up is lower than your competitors – check average sales prices
    • haven't recorded all your sales – check till tapes or point-of-sale (POS) reports
    • internal cash controls may need to be examined – ensure cash taken for expenses are recorded as sales.

    Example 3: Business above the benchmark

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

    Robert's tax return figures

    Total business income

    $704,500

    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

    He enters his tax return figures into the Business performance check tool, and ends up with a result of 120% for his total expenses to turnover key benchmark range.

     Expenses comparison - QC47939

    This is above the benchmark range of 78% – 88% for similar businesses in this industry.

    Key benchmark range

    Annual turnover range

    $50,000 – $150,000

    $150,001 – $600,000

    More than $600,000

     

    Total expenses/turnover

    52% – 66%

    64% – 77%

    78% – 89%

    Average total expenses

    59%

    70%

    83%

    Robert checks his records of business income and expenses, and realises that he accidentally included the wages and superannuation he made to himself in the calculation (when they should be reported separately on his income tax return).

    Making sure he excludes this amount, Robert re-enters the figures into the Business performance check. His key benchmark range changes to 85.96%, and his business is now within key benchmark range for his industry.

    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 cost of goods sold expenses under another expense account
    • 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 4: Business below the benchmark

    Lynda operates a designer ladies footwear business with an annual turnover of $1,700,000, and decides to see how her business is performing compared to similar businesses in the 'Footwear retailing' industry.

    Lynda's tax return figures

    Total business income

    $1,700,000

    Cost of goods sold

    $685,000

    Salary, wages and superannuation

    $140,000

    Payments to associates (including superannuation)

    $150,000

    Motor vehicle

    $2,000

    Depreciation

    $4,000

    Rent

    $175,000

    Other expenses

    $145,000

    She enters her tax return figures into the Business performance check tool, and ends up with a result of 40.29% for her cost of sales to turnover key benchmark range.

     Cost of goods sold - QC47939

    This is below the benchmark range of 50% – 56% for similar businesses in this industry.

    Key benchmark range

    Annual turnover range

    $65,000 – $150,000

    $150,001 –$600,000

    More than $600,000

     

    Cost of sales/turnover

    42% – 55%

    50% – 60%

    50% – 56%

    Average cost of sales

    48%

    55%

    53%

    Lynda 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 goods sold 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 as well as the prices she sells them at.

    End of example

    See also:

    Last modified: 27 Mar 2017QC 47939