How to use the ATO benchmark for your industry

One look at the ABS stats will show you that Australia’s business landscape is dominated small to medium size business entities – nearly 4 million of them in fact. And for the most part we’re holding our own.

But with so many likely competitors in your field, vying for the same profit and customer prizes, how do you know where you stand. It’s about more than what’s in your bank (never a good benchmark) and whether you achieved a profit or not.

Even if you perceive things to be going well – congrats – you might be lagging behind others in your industry. Hence you might want to consider how much are you turning over by comparison to others in your industry? What are your costs like when compared to others?

And the answer might lie in a somewhat surprising place – the ATO.

The ATO benchmark tool was largely invented to compare/cross check for potential inflated costs (ie: deductions) to minimise your tax (and reduce the ATO’s revenue). However, given the huge datasets the ATO has in their tool, it allows you as a business owner, to use the benchmarks to assess how you’re tracking by comparison to others in your industry. And it also let’s you better predict the possibility of an audit if you’re well outside those benchmarks.

Don’t worry about the info you’re sharing when using the tool, the ATO already have access to pretty much most of it anyway from your previously lodged tax returns. All in all, it’s a pretty hassle-free way to compare your data to give you an overview of how well your business is doing against the rest of your industry.

Here’s a quick run through of the steps:

1. Download the ATO app from Google Play or the Apple App Store
2. Navigate to Business
3. Select Business performance check
4. Have your information ready (using Xero makes this very quick) and enter the data into the tool (for a list of the information needed, visit https://www.ato.gov.au/business/small-business-benchmarks/compare-your-business-now/what-you-need/)
5. Compare your business performance against the rest of the ATO’s aggregated data.

The last phase is to assess the results and if required, make the necessary adjustments.

Within the ATO benchmark range

You basically have nothing to worry about. Your business is performing at the same level of competency as other businesses in a similar industry. But as in all things, there’s probably some room for growth or maybe a little cost trimming. You can utilise this opportunity to identify which areas need further improvement to boost your business performance.

Above the ATO benchmark range

If the business performance check indicates that your results are above the benchmark range, this means that your expenses exceeded your sales. This is likely to be a red flag for the ATO and you might want to examine your costs and possibly talk with an accountant.

One of the areas worth the scrutiny is your sourcing materials and stock. These are probably purchased at a higher rate compared to competitors so be on a lookout for other suppliers who can offer you a better deal and at a lower cost.

It is also important to check average sales price for your products, you might be selling at a different rate with lower mark-up than your competitors. Having a result above the benchmark range could also point to lapses in recording all your sales. Go over your income and expenses in your tax return and check if the statements are correct.

Below the ATO benchmark range

On the other hand, if results indicate that your business is below the benchmark range, this means your expenses are relatively lower than sales. This could mean you have less wastage/loss and that your business is running more efficiently than your competitors.

This may seem a very good reason to get excited, however, misreporting expenses can sometimes be a reason why your business is showing this result. In addition, you might have neglected to record some of your expenses – which might mean you’re paying more tax than you need to.

Taking a business performance check will allow you to detect problem areas in your business or areas that need improvement.

And that’s where we can help. If you’re looking for a professional to run their eye over your numbers and talk through where potential issues might lie for your business or you’re after an accounting/tax professional to assist your business reporting, you can call us on 02–6023-1700 or get in touch via the form below.