The Australian Taxation Office (ATO) has released updated ATO small business benchmarks to assist small business owners in evaluating their business’s financial health. These annual benchmarks allow businesses to compare their performance, including average expenses, against others in the same industry.
The Importance of Benchmarks for Small Businesses
Benchmarks serve as a valuable tool for small businesses aiming to maintain financial stability. They function like a routine health check, helping businesses identify strengths and detect early warning signs. By comparing key metrics such as cost of sales and turnover ratios, businesses can assess their efficiency and profitability.
Industries Covered by the ATO Benchmarks
The ATO’s benchmarks cover over 100 industries, including:
- Accommodation and food services
- Building and construction trade services
- Education, training, recreation, and support services
- Health care and personal services
- Manufacturing
- Professional, scientific, and technical services
- Retail trade
- Transport, postal, and warehousing
These benchmarks apply to over two million small businesses across Australia.
Using the ATO App for Performance Checks
The ATO provides a business performance check tool within its app, allowing businesses to:
- Compare performance against industry benchmarks
- Estimate annual performance based on minimal data
- Analyse financial performance ratios
This tool helps businesses monitor changes in performance and make informed decisions.
Addressing the Shadow Economy
Non-compliance with tax obligations contributes to the shadow economy, creating an unfair advantage for those not meeting their tax responsibilities. The ATO estimates that these practices account for nearly 60% of the gross small business income tax gap, approximately $11.2 billion annually. By adhering to benchmarks and maintaining financial transparency, businesses can contribute to a fairer and more competitive market.
Case Study: Anna’s Pizza Shop
Anna, a sole trader operating a pizza shop, used the ATO’s business performance check tool to evaluate her financials. She discovered her cost of sales to turnover ratio was 44%, which was within the industry range but higher than some competitors. By renegotiating supplier contracts, Anna reduced expenses and improved profitability.
Final Thoughts on ATO’s Small Business Benchmarks
The ATO’s updated benchmarks are essential for small businesses aiming to assess and enhance their financial performance. By leveraging these tools, businesses can ensure compliance, improve financial health, and maintain competitiveness within their respective industries.
Need Assistance with ATO Benchmarks?
If you need guidance on utilising the ATO small business benchmarks, our experts can help. Contact our team today to ensure your business remains compliant and financially secure.
Source: Australian Taxation Office