Performing a Benchmark Analysis

Have you ever wondered how your business stacks up against other businesses in your industry? This is an important question; how your business compares to competitors has a strong impact on your company’s value and the overall strategy you should take when trying to grow profitably. Unfortunately, unless you own or operate a publicly-traded company, chances are you don’t have access to the information needed to answer this question.

The good news is this information is far more readily available than you might think, so feel free to put your crystal ball back on the shelf where it belongs. The answer is benchmarking.

Broadly speaking, benchmarking is the process of comparing the performance metrics and business processes of a single company to similar companies in order to determine its true value and financial strength. Taking benchmarking a step further, it can also be used to compare current business performance against past performance to identify opportunities to add value to your operation.

For example, let’s say your business is dealing with decreasing net income even though revenue remains the same or even increased over the previous year. You may find yourself asking, “What’s going on, and what can I do to fix it?” A benchmark analysis that compares your performance over several years and to the performance of peers might reveal an inefficient allocation of resources, or opportunities to improve profit margins with suppliers.

However, analyses like these can be difficult. Additionally, actual insight requires access to comparable data, time and in-depth knowledge of an industry. While business owners may have the knowledge, time usually comes at a premium and is often spent entirely on day-to-day operations to keep their company running. Access is trickier since you may not belong to a benchmark group. You also don’t want just anyone performing a benchmark analysis and providing recommendations for your company.

Although there is no defined standard as to who can perform a benchmark analysis for a business, we typically recommend a professional who has the following credentials:

• Financial and accounting background – If someone is going to analyze your financial statements and provide recommendations on how to improve your operation, you should be confident that he knows what he’s doing. For this reason, we recommend at least one member of this team hold a CPA, CFA or CFE.
• Understanding of economics – Anyone who is going to work with you should understand the principles of economics and the impact of changes in the economy on your business. We recommend someone on this team hold at least a four-year degree or higher in economics or finance.
• Experience performing valuations – One of the key steps to a valuation analysis is developing industry and market comparisons to determine value. For this reason, we recommend at least one member of this team hold a CVA designation, which usually indicates a high level of experience performing valuations on companies.
• Working knowledge of your industry – Having a thorough understanding of market conditions – and access to similar companies in your sector – will add significant value when it comes to benchmarking.

Topline Valuation Group and its team of industry experts hold all of these credentials and more, and we can step in to help your business improve performance through benchmarking analysis. Topline will build a company-specific strategic plan for your operation by analyzing your business, gathering market comparisons, identifying areas for improvement and developing recommendations to make your business more efficient.

We don’t just send clients a report with numbers and a checklist of things to do. Topline continues to work with you to provide insight into our benchmarking analysis by scheduling conference calls or site visits to help you use this information and efficiently grow your business, achieving your long-term objectives.

Our experience working with small and mid-size businesses spans over four decades, and we can confidently say that Topline is equipped to handle any problem your firm may have. For more information on how our benchmarking analysis can help your operation, contact Adam Freedenberg at AFreedenberg@SantosPostal.com.