What it means to be outside the benchmark range

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
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 77–88% 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'	51% to 67%	62% to 76%	77% to 88%
Average total expenses	59%	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 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
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 47–57% 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'	41% to 54%	47% to 57%	46% to 54%
Average cost of sales	48%	52%	50%

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.