#2) Determine appropriate benchmarks for your organization
Now that you have KPIs (Key Performance Indicators) for your business you need to know if your indicator values are good or bad! Benchmarks serve as your guide to how your business is doing. There are three basic components to consider when developing benchmarks: historical levels, industry standards and company goals. Each of the three have individual importance when developing benchmarks, therefore it is important to make a concerted effort to consider as many sources as possible.
Tip: Compile KPI values for the previous five years (if applicable) and create a 5 year average. It may be the case that certain periods have an anomaly that will skew the data, in that case you should adjust for the anomaly.
Industry standards can be hard to find and when you do are often not directly applicable, however they serve as a guide and combined with the other two help to deliver a solid benchmark. One place to look for industry standards is www.bizstats.com . Click on the industry financial benchmark reports link and navigate from there.
Company goals are based on past performance and the company’s growth strategy. Look at the historical KPI values you generated, set goals for expense reduction and revenue increases (as a percent of total income for example), compare them to the industry standards and decide with management and/or advisors where to set your benchmarks.
Don’t forget to check out the Maritime festival this weekend at the Burlington waterfront
Geoff Robertson, MBA, Entrepreneurial Advisor
Davis & Hodgdon Associates, CPA’s