Last week’s post on trend analysis explained how you can grow your business by looking outside of it. This week, we’ll look at benchmarking, another growth method small businesses can use.
Benchmarking is the quiet, shy method of the two because you must look inward to compare your progress to your competition.
Today, let’s look at the goal of benchmarking and how you can get help from a CPA to begin implementing it.
What is benchmarking, and why should a small business do it?
Benchmarking in business is a strategic tool that compares a company’s performance, processes, and practices to its competition, especially industry leaders. The goal of benchmarking is to identify areas where a business can improve. It also adopts best practices to implement those improvements. All this can give a competitive advantage to businesses that make it part of their culture. But you can’t go it alone. You’ll want to enlist a CPA to help in the following areas.
Identifying Key Metrics
Benchmarking done poorly is arguably worse than not doing it at all. And if you don’t measure the right things, then there’s not much hope the rest of the benchmarking process will work.
That’s why it’s important to work with a CPA, preferably one familiar with your business, who can help identify the right key metrics for your business. These metrics might include financial ratios, operational efficiency measures, and customer satisfaction scores. But it will vary based on the type of business and its goals.
Data Collection and Analysis
Once you get help identifying the right metrics, the next task is getting all the data. The CPA can tell you the correct data to gather and help analyze it. You should expect a comprehensive view of your company’s current performance as well as feedback on how to apply it. That’s what we’ll examine next.
Benchmark Selection and Gap Analysis
So, all the data is collected and analyzed. Now what? Here, the CPA can lend a hand in choosing the right benchmarks for comparison. Those may be external, comparing your business to your nearest competitor. Or they may be internal, like comparing how a store in one town is doing compared to a store in another. Whole volumes can be written about this based on any number of variables.
Suffice it to say here that you should expect quite a bit of insight from your CPA, pointing out things you didn’t think of (or even know) and offering deeper insight into those you did.
Once benchmarks are established, CPAs can perform a gap analysis to determine where the company’s performance lags behind the benchmark data. And this is where the rubber meets the road because all the hard work leads to a plan to improve your small business.
Performance Improvement Strategies:
At this point, your CPA becomes even more of a strategic partner. They can focus on changes in systems, processes, and resource allocation issues identified in the gap analysis.
They can also recommend cost control and efficiency improvements and provide a financial health assessment based on your company’s liquidity and profitability.
Your CPA can even help develop a risk management plan based on the benchmark findings.
The Bottom Line
Benchmarking is an extremely valuable tool for small businesses. However, it takes a CPA’s financial skills and analytical expertise to make the process work. By teaming up with a good CPA, you can grow your business and develop a strategic relationship that will make your small business more competitive.