We're here to help
Usage tips | Business Strategies | Ratio Definitions | Webinars
We have put together a multitude of resources to help you with the Benchmarking Suite. If you have any additional questions, check out our support page or contact us.
Common issues and queries
The average employee wage is not reasonable – either too low or too high.
Common causes of this problem are:
We require ‘wages’ to be based on gross wage cost.
There is insufficient owner return
Common causes of this problem are:
Items not completed
Some items in the datasheet ask about non-financial information, which is sometimes not immediately obtainable. Some productivity ratios in your client report will not work without these figures. The most common items missing are:
Please complete the entire questionnaire for reliable reporting.
What’s in Other Expense? What’s in Other Income?
There is space on the data sheet for you to type the details here. If we can’t tell what’s in here, and the income or expense is becoming significant, chances are we’ll ask you about it.
Common problems include loss or profit on the sale of an asset, investment income and expenses, and profit transfers between related entities. Contact us if you are unsure about anything here.
The interest expense looks too high or too low for the amount of debt in the business
Common causes of this problem are:
The ‘premises’ situation is unclear – i.e. reporting a rent expense and also a value for ‘land & buildings’; or no rent and no land & buildings
Common causes of this problem are:
It’s possible that you’ll need to look at averages from different sections of the Benchmarks pages. A good start is the averages from similar-sized firms (turnover), or a similar location-type (e.g. other CBD firms, etc.).
If your client is roughly ‘better’ than these averages, then spend most of your time comparing them to the average of the high-profit firms. This gives a challenging set of targets in a few key areas.
If your client is ‘below’ these averages, then concentrate on getting them to the average of these firms as your first objective.
For some expenses, look for more comparable averages; e.g. if the client’s firm is in a Shopping Centre, compare rental expense, other occupancy outgoings, advertising and gross profit margin with the averages from other shopping centre outlets.
Or if the client owns their premises, then interest cost and ‘other occupancy outgoings’ are best compared against other businesses with owned premises (i.e. excludes the renters).
Work immediately to boost the sales/fee income first – it’s quick and measurable. Low-cost communication with existing customers, outlining special offers is a great start.
Then look to tactics that will boost liquidity – collecting debtors more quickly; finishing work-in-progress so the client can send out the bill; lowering stock by reducing purchases in the next few months.
With ‘expense control’, concentrate on efficient buying and getting the right quality first. This is more productive than a ‘witch hunt’ to reduce usage
Easy! Please email us your logo on a white background in jpg or png format. If you have multiple versions of your logo, the square one is best, as the branding spot is square. If you supply us with a colour code in RGB or Hex, we can even apply your matching brand colour from login all the way through to the report!
Yes, you can. We can supply a URL similar to https://yourcompany.benchmarking.com.au which will not only feature your logo and colour but also allows you to create a welcome tag of your choice. Contact us today for a free setup of this service.
The format of the word report is MS Word DOC and will open directly in MS Word.
Alternatively, use the Open Document Format. The extension is ODT.
To open ODT files, simply right click on the downloaded report and choose “open with” then select Microsoft Word
Note: Microsoft supports this open standard since Microsoft Office / Word version 2007 with Service Pack 2 and newer. Up until version 2010 however, the support has a couple of flaws. See the next article for more info.
Microsoft supports the Open Document standard since Microsoft Office / Word version 2007 with Service Pack 2 and newer. Older versions are not supported.
Up until Office / Word version 2010 however, the ODT support has a couple of flaws.
When opening the document, the following error appears: “The file Report.odt cannot be opened because there are problems with the contents. Simply click OK.
Then another message pops up “Word found unreadable contents in …” Also, confirm this with Yes and the document will load without problems.
We recommend to use File – SAVE AS immediately to store the report in the Word DOC or DOCX format.
This compatibility issue has been resolved in MS Office versions 2013 and higher.
When opening the word report in Microsoft Word for the first time, the index page is not initialised.
Simply right click on the title “contents” and chose “update field”
This will restore the index with all titles and page numbers.
This issue has been resolved in more recent MS Office versions.
Trading Income or total revenue of the firm
Professional Fees or total revenue of the firm
Gross Profit
Non-personnel Related Overheads
Total Overheads – Employee Wages, Staff On-costs and payment to Sub Contractors
Total Vehicle Costs
Net Profit (bos – before owners’ salaries and benefits are paid or bps – before principals’ salaries and benefits are paid)
It’s possible that you’ll need to look at averages from different sections of the Benchmarks pages. A good start is the averages from similar-sized firms (turnover), or a similar location-type (e.g. other CBD firms, etc.).
If your business is roughly ‘better’ than these averages, then spend most of your time comparing them to the average of the high-profit firms. This gives a challenging set of targets in a few key areas.
If your business is ‘below’ these averages, then concentrate on getting them to the average of these firms as your first objective.
For some expenses, look for more comparable averages; e.g. if the client’s firm is in a Shopping Centre, compare rental expense, other occupancy outgoings, advertising and gross profit margin with the averages from other shopping centre outlets.
Or if the business owns its premises, then interest cost and ‘other occupancy outgoings’ are best compared against other businesses with owned premises (i.e. excludes the renters).
Work immediately to boost the sales/fee income first – it’s quick and measurable. Low-cost communication with existing customers, outlining special offers is a great start.
Then look to tactics that will boost liquidity – collecting debtors more quickly; finishing work-in-progress so the client can send out the bill; lowering stock by reducing purchases in the next few months.
With ‘expense control’, concentrate on efficient buying and getting the right quality first. This is more productive than a ‘witch hunt’ to reduce usage.
Avoid the factors that reduce your closing stock
Eliminate or minimise high-cost purchases
Eliminate ‘Depressed Sales Values’ from the level of stock sold
Check your pricing
General
Reduce the Amount of Labour Required
Marketing and Promotion
Pricing
Staff Training
Create ‘packages’ to better cross-sell
Look at the special features of the business, then make allowances for those
Improved cost control comes from techniques such as
Process / Volume / Price
Most costs can be analysed by looking at three component parts of the total: The Process; The Volume; and The Price. Each is looked at in turn, to show how this approach will diagnose a problem.
The Process – looks at the underlying activity which creates the demand for the cost
The Volume – looks at how much of the particular item you really need, compared to what you are presently using:
The Price Paid – this lets you tighten the way goods or services are bought
The outline can be used to review most expenses – e.g. phone calls, or insurances etc. It does not just apply to purchases of ‘stock’.
In the case of (e.g.) high phone cost, it could be applied like this:
Process – review the way people use the phone – do they plan calls to outline what has to be accomplished in a call? Do they make repeat calls because all required info was not obtained in the first call?
Volume – is every call necessary? Are all calls business-related? Could an email get the same info at a lower cost and time spent?
Price – is it cheaper to use a mobile or a desk phone? Is the firm in a ‘plan’ with the phone company? Can new technology such as VoIP / internet telephony provide cost savings?
This is used as a base for our expenditure and profit comparisons.
Example:
Trading Income $100,000
Less Cost of Goods Sold 70%
Equals Gross Profit 30%
Less Expenses/Overheads 20%
Equals Net Profit (bos)* 10%
Reported as a % of income.
Expressed as a % of income
Reported as %s of income.
Note: In those sectors where businesses have contract employees, Employee Wages and Salaries often includes payments to ‘contract employees’ (in particular, this commonly occurs in the contractor sectors. Payments to independent sub-contractors appear elsewhere unless otherwise specified.
Reported as a % of income.
* bos – before owners salary
Total Profit before any Salary or
Drawing is paid to Active Owners
= ____________________________________
No of Active Owners, in full-time equivalents
* bos – before owners salary
Total Profit before any Salary or Drawing is paid to Active Owners
= ____________________________________________________
(No. of Owners) x (Hours Worked/Owner/Year)
* bos – before owners salary
(Retail Sales Only – COGS)
= ________________________________ x 100
Retail Sales Only
Days’ Debtors Outstanding
Year-End Debtors Balance
= _____________________________ x 365
Total Sales to Account Customers
Days’ Stock on Hand
Value of Stock of Goods for Sale
= ______________________________________ x 365
Cost of Materials Used or Cost of Goods Sold
Days’ Work In Progress (WIP) Outstanding
Year-End Work-In-Progress Balance
= ______________________________ x 365
Total Sales or Fees
Number of personnel working in the business
This will generally be expressed as a number per staff category or as a ratio of staff per principal. In all staff-related ratios (e.g.. Personnel Structure or Personnel Productivity), full-time-equivalent personnel numbers are used. This converts part-time or part-year personnel to the equivalent proportion of a full-time position.
Total Area in Square Metres
= _______________________
Total Personnel
% Revenue drops before Losses Start (‘Margin of Safety’)
Net Profit (bos)*
= ________________ x 100
Gross Profit
This shows the extent to which sales revenue or total income can fall before the business reaches its break-even point.
* bos – before owners salary
This ratio shows whether the client’s business is capable of easily funding a higher turnover base. A positive result for this calculation indicates that the business should be able to fund its growth from additional profits; a negative result suggests that the client might experience liquidity problems if they grow.
Growth Capacity calculation:
$ of Net Profit – ($ of Current assets – $ of Current liabilities)
= ________________________________________________ x 100
Turnover
Steps if the Growth Capacity is negative:
Increase profit
Reduce the amount of money tied up in the business
The one constraint is to keep a sensible ‘current ratio’ while all this is happening: Long-standing rules of thumb talk about current assets being around 1.5 to 2 time’s current liabilities, in order to be commercially sound. Retailers usually have slightly lower levels, due to the high cash component in their sales.
Each category of the balance sheet is expressed as a percentage of Total Assets. The asset base excludes loans to principals or owners; equity has been adjusted by adding back any loans from owners or principals and deducting any loans to the owners or principals.
Owners’ Equity
Reported Owners’ Equity + Loans from Owners – Loans to Owners
= ______________________________________________________ x 100
Total Assets – Loans to Owners and Related Entities
Asset Turnover (times pa)
Total Trading Income
= __________________________________________
Total Assets – Loans to Owners and Related Entities
Stock Turnover (times pa)
Cost of Goods Sold
= _____________________
Closing Stock Value
Assets per Person
Total Assets*
= _____________
Total Personnel
* where Total Assets excludes Loans to Owners/Principals and Related Entities.
Gross Margin Return on Inventory (GMROI)
Gross Profit
= ___________________ x 100
Closing Value of Stock
This breakdown differs according to the particular sector that is being processed. The professional sectors use the type of work undertaken as a % of total fees. The retail sectors use the type of product sold as a % of total sales.
The hourly charge rate per personnel category is used in professional and trade sectors where fees and charges are based on the time taken to complete a job.The hourly charge rate per personnel category is used in professional and trade sectors where fees and charges are based on the time taken to complete a job.
Average Consult Numbers x Consult Length (in mins)
= ______________________________________________ x 100
38 hours x 60 minutes
Total Hours Charged to Clients by all Personnel
= _________________________________________ x 100
Total Hours Worked by all Personnel
Total Net Profit (before owners’ salaries & remuneration)
= _____________________________________________
Total Interest expense
Higher results show that the firm is highly capable of servicing its interest expenses. In many of our questionnaires, Interest cost is not reported on its own – it also includes Bank and Credit Card charges. As a result, many of our calculations divide total net profit by the combined cost of interest and bank fees.
A second ‘Interest Cover’ ratio is also calculated (at the request of the finance industry). This second calculation adds personal interest paid by the owners (e.g. on home loans or personal loans etc) into the Interest expense of the business, so it shows a total capacity to cover all interest costs (this is particularly relevant in sole trader or partnerships which are not operated through a company or trust structure).
Total Current Assets
= _________________________
Total Current Liabilities
A higher figure is considered better here.
Total Current Assets – Inventory
= _____________________________________
Total Current Liabilities – Bank Overdraft
A higher figure is also considered better here. Inventory is rarely all replaced in a month, and bank overdrafts are not often called in for total repayment so both components are excluded from the remaining current assets (e.g. cash, accounts receivable etc) and current liabilities (e.g. trade creditors and other short-term debt).
Cost of Goods Sold
= _____________________
Value of stock on hand
Our calculations are normally based on the value of stock on hand at year-end. However a better overall guide can be obtained by either averaging the values of stock at the start and finish of the financial year, or (even better) by averaging month-end stock values.
Total Revenue
= ________________________________
Total Assets – Loans made to owners
Higher results show that assets are being used more-productively to support or generate revenue.
Total Revenue
= ___________________________________
Total Liabilities – Loans from the owners
Higher results give more confidence that debts can be paid when they fall due. Loans from the owners are treated as equity for the purpose of this calculation.
(Cash on hand & at Bank + Trade Debtors + Current Assets incl GST Clearing A/c)
__________________________________________________________________
(Trade Creditors + Other Current Liabilities incl GST Clearing A/c)
The Acid Test determines wether or not a business has enough short-term assets to cover its immediate liabilities, without having to sell inventory.
Total Assets – Loans to owners
= __________________________________ x 100
Total Liabilities – Loans from owners
Generally ‘more’ equity increases the safety of the business, since its actions are not as susceptible to decisions made by lenders. However, more use of debt (therefore lower equity as a % of assets) can increase the rate of return achieved on the firm’s equity.