Former New York Mayor Ed Koch used to endear himself to (or annoy) voters by constantly asking people on the street, "How am I doing?" Silly stunt? Perhaps, but checking your numbers against your industry peers is no exercise in silliness. It can point out big gaps in efficiency and suggest changes you should make but can't see for the fog of day-to-day managing.
Likewise, starting a new business without first seeing how the sector works financially is like jumping off a cliff in the hope that a pile a mattresses awaits you below. Here are some ways to get a grip on the real numbers:
Just getting going with your own shop? Keep costs low
Several Web sites offer instant analysis for free. Plug in some basic numbers and get a quick rip on what you should be doing in the months ahead.
Call in your chips with a trade association membership
Industry associations often give members free benchmarking data for their particular industry slice.
Understanding what you see
Many small business owners are intimately familiar with the numbers they face in running their company, but it helps a lot to have a sense of the cycles over decades. Call in a guru to sort out the snapshot.
Get your financial expert involved
It might not be immediately clear what your numbers tell you about your own business, much less what other companies are up against. Your accountant should walk you through your benchmarking results.
Step it up with professional benchmarking services
If you business is already large or part of a complex industry with lots of geographic and supplier variables, consider hiring a consultant for one-off review. What you learn could pay for the service many times over — or convince you to sell and move on.
- Financials are a big part of the picture, at least early on, but benchmarking extends to industrial policy, human resources, pay scales and dozens of other, industry-specific barometers.
- If you find that a benchmarking of your financials works well once, consider scheduling a second or third review during the year to sort out flukes and seasonal bumps.
- Remember, of course, that most benchmarking services rely on data from tens of thousands of public companies. Privates are generally harder to measure and the services use estimates. Depending on your business and which specific metric, this might require a seriously large grain of salt.
- Be ready to make change if comparisons show you a clear move forward. Sitting on results in hopes they are wrong is a bad idea and can only hurt you more over time.
