Each year, the Australian Taxation Office (ATO) collect the financial information as presented on the income tax returns and activity statements of small businesses…and compile a set of small business benchmarks.
Small business benchmarks are financial ratios that are developed to assist business owners and their advisors in comparing the performance of similar businesses (based on turnover), in a particular industry.
I recently completed the financial statements and income tax return for a catering services business, and the owners were interested to see how they compared with other businesses in the industry.
According to the latest small business benchmarks released by the ATO, a catering service with turnover between $50,000 – $200,000 should have:
- cost of sales/turnover of 34% – 46%
- total expenses/turnover of 65% – 79%
- labour/turnover of 17% – 24%
- rent/turnover of 6% – 12%, and
- motor vehicle expenses/turnover of 4% – 7%
The ATO use the small business benchmarks to identify businesses which may be operating outside the expected range for their industry, which may indicate they are not reporting their financial figures correctly.
While there may be genuine reasons for operating outside the benchmarks, businesses should review their results and ensure their record keeping practices are up to date and complete.
If you would like The Tax Chic to review your operating results against the ATO benchmarks for your industry, please use the Contact form!