Amid growing uncertainty, companies are seeking better analytical capabilities in order to make more informed decisions. Benchmarking analysis is one way to help them achieve this.
As accountants, we routinely look at firms’ past performance, and produce statutory records such as audits and financial accounts. But an accountant’s job amounts to much more than studying historical, internal data.
Our role is to be a strategic business adviser. It’s our job to look at your market and strategy; evaluate how your business stacks up against them; and identify what you must do to meet your goals.
This is what financial benchmarking enables us to do.
Our benchmarking service compares your financial results to a carefully selected group of peer organisations, as a means to assess your efficiency, profitability, productivity and competitiveness.
Benchmarking lets you see how you’re performing relative to your sector and its best-in-class organisations. It provides a detailed comparison of your growth, revenues and your costs – not just the total cost base, but each element of it.
Our benchmarking reports also give you an external, forward-looking perspective, in the form of a five-year industry outlook. This highlights the risks facing your sector, and sets out the broader economic context in which your business sits.
We base our analysis on specialist business and industry reports and data, some of which come from our partner IBISWorld. Their experts collate and scrutinise a comprehensive range of economic, demographic and government data, providing valuable insight into UK industries and their performance indicators.
We then use this information, and the data we have on your own business, to understand your market, assess your competitors, make forecasts, carry out transaction services such as due diligence on acquisitions, and more.
Benefits of benchmarking
In a nutshell, benchmarking allows you to understand how to improve performance, and what are the threats to your future growth.
As such, it adds vital strategic context to your business plan. It helps you to answer essential questions such as:
• How do your objectives align with the prospects for your sector?
• How realistic are they in the current market context – and are they actually ambitious enough?
• Will achieving them mean having to move some functions overseas?
• Will you need to secure new funding?
• Should you make a strategic acquisition (or several) – or look to sell?
• What does the industry outlook mean for your exit plans?
Plus, should your strategy require you to raise funds or seek acquisitions, benchmarking reports can be a useful aide when talking to potential investors, or when you’re on the M&A trail.
The detail they provide will help you justify your reasons for borrowing, selling up or acquiring another business. In fact, lenders use them to inform their own credit decisions; and transactions advisors rely on them when making recommendations.
Finally, benchmarking is an effective support tool for contingency planning –particularly important at a time when the business environment is proving so unpredictable.
A regular strategic checkpoint
Given its multiple benefits, benchmarking is something firms should be doing as a matter of course.
But all too frequently, business owners don’t find the time to think strategically about the medium and long-term continuity of their revenue sources.
That’s often because they’re busy with day-to-day operations; they fall into the classic trap of working in the business, not on the business. And they may have nobody on hand to give them strategic advice.
But without an eye on the bigger picture, problems can mount – and become critical before you know it.
One creative agency I know experienced a spate of major projects hitting delays in getting off the ground. The work was won, so the firm’s financial forecasts looked healthy. But delays to the start dates dramatically impaired its cash flow and profit position – an effect the directors hadn’t fully anticipated.
A timely sector review, as part of the business’s regular strategic planning, would have unearthed these pressures, which were affecting the industry as a whole.
Looking at your financial accounts once a year isn’t enough to keep you on top of such threats. That’s why regular benchmarking is a must for ambitious businesses that want to safeguard their growth prospects.
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.