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January 2, 2013 — A weekly look at Wyoming business questions from the Wyoming Small Business Development Center (WSBDC), part of WyomingEntrepreneur.Biz, a collection of business assistance programs at the University of Wyoming.
By Bruce Morse, WSBDC Region 2 director
“I attended a business roundtable luncheon recently, and there was some discussion about benchmarks. Can you elaborate on what those are and where to find them?” Mike, Torrington
Benchmarks can refer to a couple different things. Typically, when we think of benchmarks, it is in relation to either the industry a business competes in, or it could be internal goals that the company has set for itself. Internal goals often are set by management (perhaps in collaboration with staff) and can be measured in a number of ways, such as sales growth, sales per employee or per square foot, hours billed and so on. Then the business would track these monthly or quarterly to measure progress.
External benchmarks often are monitored using various financial ratios. Industry comparisons can be found in trade associations or other national sources that compile these numbers. One that banks typically use is RMA, or the Risk Management Association, which tracks many ratios such as liquidity ratios (current, quick), profitability ratios (gross and net margins), efficiency ratios (return on assets, return on investment), and working capital cycle ratios (inventory turnover, accounts receivable turnover and accounts payable turnover). These are just a few that could be monitored. Each business must decide which are important to them. For instance, if you are a cash-only business, accounts receivable turnover would not make sense.
The first step is to know where you stand currently. Having accurate and timely financial data for your business is critical. If you are looking for benchmarks for your business and you belong to a trade association, start there. If they don’t collect or provide that information, ask your bank if it can help you. If not, contact the Small Business Development Center in your area, and we will be happy to assist in locating comparison data and setting up a system to monitor your progress.
A blog version of this article and an opportunity to post comments is available at http://www.wyomingentrepreneur.typepad.com/blog/.
The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, email email@example.com or write 1000 E. University Ave., Dept. 3922, Laramie, WY, 82071-3922.