by Elias Makris, Partner
While traditional benchmarking measures historical performance, ‘value improvement benchmarking’ is future-focused, and identifies and quantifies business strengths and weaknesses. This in turn informs strategy for improving the future value of the business.
Value improvement benchmarking provides clear insights that support the steps necessary for increasing the value of your business by identifying how the business differs from similar businesses in terms of: value, key performance indicators (KPI) and industry. Put simply, benchmarking allows you to ask, and answer THREE compelling business valuation questions, detailed below.
But first, there is a good reason why real-time, accurate benchmarking information is one of the most sought-after financial resources for all industry groups in Australia, and it’s this:
Benchmarking data informs the type of strategic planning that results in better business outcomes and better personal outcomes for the business owner.
As a successful business owner, you are actively planning for the future of the business AND for your own retirement. You have identified your business value gap and the strategies to close it. This will increase the business value and in turn, significantly broaden your options for the business as well as for yourself personally. At this point, it is benchmarking that will enable you to shore up your strategic planning and lead to an even more profitable and valuable business.
Benchmarking allows you to ask, and answer, these THREE questions:
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How does the value of my business compare to that of similarly sized businesses?
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How does the value of KPIs in my business compare to that of similar businesses?
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How does my business compare to similar businesses in my industry?
Benchmarking reporting for your business on valuation, KPI performance and industry may then be used to identify reasons for the differences found and, importantly, to pinpoint future value improvement opportunities for the business.
The valuation benchmark report provides you with current information of how comparable businesses in your industry are valued, the industry average and benchmark profit, capitalisation rate, and business value. If you are buying a business, the report will enable you to minimise your business acquisition risks so you avoid paying too much. If your business is growing, the report will identify areas for future value improvement. If you are selling the business, the report will identify strategies for maximising your business sale price.
The performance benchmark reporting drills down further into opportunities for increasing business value by comparing your business KPIs with comparable peer group and industry benchmarks. The performance benchmarks are grouped into growth, performance, profitability and cash flow and are ranked in accordance with the most significant impact on a business’ value.
Rosenfeld Kant’s Better in Business framework offers access to the most precise, and one of the fastest growing benchmarking databases, in Australia. To ensure data consistency, the databases conform to the Industry Standard Chart of Accounts (‘ISCOA’). They are continually improving as 50 – 200 business valuations – using a patented business valuation tool – are completed and added each month.
Your Rosenfeld Kant business advisor will assist you to use the benchmark reports to achieve these outcomes:
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Access accurate, real-time value improvement benchmarks relevant to your business
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Provide a comparison of your growth, profitability, performance, cash flow and finance key performance indicators in the context of your group/industry average and benchmark;
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Compile comparative performance benchmarking information, ranking performance for your business in regard to each key benchmark into ‘below average’, ‘average to benchmark’ and ‘above benchmark’ performance by your business; and
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Provide an illustration of future value if benchmark performance is achieved.