This week, I had the opportunity to speak in a seminar organised by the Singapore Chinese Chamber of Commerce and Industries to share insights about financial benchmarking to a group of mostly traditionally-run SMEs from various verticals.
What the Event Was All About
[+] Showcase of 5 industries’ financial health (2006-1H2016)
[+] 2 case studies of how financial benchmarking is done
[+] Steps on how to conduct and apply financial benchmarking for entrepreneurs: valuation, business plan, cashflow planning and fund raising.
Compare critical financial metrics with the industry or your competitors, for instance
[+] how your business performs
[+] how much equity drives the performance
[+] the level of risks you take
[+] the productivity levels
[+] how your competitors perform
[+] the gaps in your growth assumptions or margins
[+] what targets to set in the coming or current year
Why Financial Benchmarking Matters For SMEs
People seek out benchmarks due to inherent competitiveness or in pursuit of improvement or simply to assess their performance as compared to others. Many SMEs have no idea where they stand in comparison to their competitors or in terms of their goals. Financial benchmarking is used as a way of measuring where a business stands in comparison to their competitors, what areas their business is lacking in and how to increase profit.
As a business owner, you must have come across questions like this very often:
- Why do some companies always end up making higher profits as compared to their competition?
- How do I understand the strengths and weaknesses of my business?
- What do I have to do to increase sales and ROI?
- What is the company that is leading the industry that you are in?
- What are your competitor’s strengths and weaknesses?
How Financial Benchmarking Can Benefit Your Business
Financial benchmarking allows you to gain a better understand about how your business is operating and how well it can operate if managed properly. Financial benchmarking is not just a metric for performance, it acts as an aid to help you realise and zoom in on small issues of your business that might be costing a lot to your business before approaching larger issues.
For example, assume that you and your competitor bring in the same revenue which widely regarded as the leading factor. You consider that since you and your competitor had the same revenue, you are on equal footing that is until you realise that your gross profit margin is less than 5% as compared to your competitors. This means that for every million your business earns your competitor earned $50,000 more. Once you start understanding what your business is missing or lacking when compared to your competitors you can truly start to improve and grow.
By carrying out a financial benchmark for your business you may be able to realise that:
- You are spending more on rental charges and might need to renegotiate them
- You are not providing enough resources to a potential sector of your business that has the potential to be big
- Your inventory costs are higher than your competitors
- You are underpaying or overpaying your employees based on the industry value and may need to reexamine your productivity and training
- Along with other crucial information that just might help make your business make it big.
So How Do You Get A Financial Benchmark For Your Business?
At this point you are probably wondering how you can get a professional business benchmark conducted for your business. A financial benchmark can be carried out by taking in account various perspectives but the most efficient and profitable method is to have a professional financial benchmark agency carry it out for you. MyFinB is one such company that provides comprehensive financial benchmarks for SEMs as well as offering a free financial report of your company.
Knowing where your business stands, how it can improve and where your business is lacking can help you cut down costs and increase profits.
Contact MyFinB today to get started!