Compare your business performance against industry benchmarks
Background information
To accurately determine the financial health of your business is beyond the scope of this manual. However, readily available industry benchmarks provide a point of reference to indicate how your business is performing compared to others in the industry. These benchmarks allow you to do one or all of the following:
- Quickly check your business health
- Identify opportunities for further improvement in your business (comparing your benchmarks to others)
- Monitor the progress of your business over time (comparing your benchmarks between years).
Key decisions, critical actions and benchmarks
Benchmarking in the sheep industry
Benchmarking can be either indirect — where sheep producers calculate their own performance indicators and compare them against published industry benchmarks; or direct — where sheep producers contribute their farm information into a service which generates the benchmarks for comparison with other sheep producers.
Indirect benchmarking To determine which benchmarks will be relevant to your business, start with the primary benchmarks in tool 1.9. At the whole-farm or business level these will tell you how healthy your business is and, at the enterprise level, they will identify those areas of the business with the greatest opportunity for improvement.
Once the overall health of the business is determined and opportunities for improvement identified in individual enterprises, secondary enterprise benchmarks (also in tool 1.9) can be applied selectively as a guide to make specific changes and monitor progress.
Guides to performance are not provided here because these will differ considerably depending on location, sheep enterprise, genetics used, farm enterprise mix and many other variables. These benchmarks are best tracked internally to improve specific areas of enterprise performance.
More specific business and enterprise benchmarks can be obtained from the Victorian Farm Monitor Project that has been operating for more than 20 years. For indirect benchmarking, it is widely considered that cost of production ($/kg of meat or wool produced for sale) is the most useful benchmark as it integrates many aspects of the business. If you don’t know your cost of production per kg of lamb or wool, return to procedure 1.2 of this module and use the cost of production calculators as discussed.
Active benchmarking services
Both public and private service providers carry out active benchmarking. These services are very useful because they:
- Calculate the more complex benchmarks
- Provide a consistent methodology between years
- Cover financial and physical aspects of the whole business or sheep enterprise
- Provide direct comparisons to other businesses, highlighting opportunities
- Often provide professional services to help interpret the information generated and identify the best course of actio
Benchmarking services are available in all states, either through local farm management consultants or accountants, or through larger service providers.
Monitoring and reporting
All businesses undertake some level of monitoring and reporting. Some of it is legally enforceable such as the reporting associated with the Australian Tax Office, Occupational Health and Safety (OH&S) and stock sales. In addition, some markets require a level of reporting, such as wool sales by description.
However, this compulsory monitoring and reporting is seldom sufficient to be accepted as good practice, let alone best practice. Best practice requires some level of reporting of progress against the objectives that have been set for the business, at least annually (see procedure 1.1 in this module). In the corporate world, annual reports are compulsory and must come with an independent audit by a qualified accounting firm.
This is rarely an appropriate approach for small businesses, where tax returns are often the only ‘Annual Report’. These give no indication of progress towards objectives, and are usually structured to minimise tax rather than to provide a useful summary of the financial health of the business. The extent of reporting is a personal and business choice, but minimum best practice must be to document progress against objectives and to update short, medium and long term objectives in the light of the past year.
