What Is Business Benchmarking?
Most people understand that the basic term “benchmarking” refers to measuring something against an identified and accepted standard or ideal. In the business world, benchmarking can be performed in a variety of situations but for our purposes, business benchmarking is done specifically with an eye on your company’s efficiency and ultimate results-your profits.
There are numerous factors that contribute to the success or lack thereof that your company sees from its efforts. Some of the time, you may be aware of areas for improvement but other times, you may not. Business seems to be “just fine” so you continue with your existing processes and tools.
Business benchmarking helps you find ways to increase your profits by improving your overall efficiency. By comparing your key financial processes, procedures and tools against top industry benchmarks, you can easily identify areas for improvement. This can give you dramatic advantages over your competitors and allow you to not only get ahead of the competition but to stay there.
Financial records tell the story
Your company’s accounting and financial data is the heart and soul of your business. Reviewing it is like giving your entire operation a complete wellness checkup. Just as with your physical health, problems can exist with your business even if no symptoms are visible yet. Also like your personal health, optimal wellness and operation cannot be achieved if you are not aware of the need for improvement.
Benchmarking will efficiently find your internal system challenges and help identify the best solutions for you. By comparing your costs, expenses and result against the nation’s and the world’s most successful companies (the benchmark data), you will receive your prescription for the improved sales and financial health of your business.
The importance of preventative checkups
Taking action before you have a serious problem is always ideal, no matter the situation. Certainly benchmarking can be done at any time and will almost always be able to identify ways that you can hone your operations and increase your profits but the optimal situation is one in which you utilize benchmarking at regular intervals to maintain your efficiency and leadership position.
Business Benchmarking is the process of finding then fixing internal issues by comparing your Revenue and Expenses against the most efficient and profitable companies. This helps you identify the differences that may be keeping you from having the same success as your peers or competitors.
With your year-end Profit and Loss report or tax return you transfer each line item from your profit and loss, both revenue and expense, on to a Benchmark Financial Statement. You then extensively research to find similar companies with revenue similar to yours BUT with much higher NET PROFIT. Next place your line items beside the benchmark company. At this point you easily find your deficiency called LOST PROFIT!