Burnish Bookkeeping LLC – Budgeting and Bench Marking

For most companies, managing and reviewing their financial results is merely an exercise of looking at the balance sheet and P&L after a month’s close. Then, management decides as to the results typically based upon how the current month compares with the previous month’s close, or the same time period of the previous year. Essentially, the business is informally budgeting and bench marking against its actual results. This type of financial management doesn’t consider how the organization’s results compare with its competitors or industry, or even with the goals of shareholders and management. Establishing and using budgets and benchmarks to gauge, as well as improve financial results ought to be a part of every organization’s best practices.

Bench marking may be as simplistic as choosing a couple of key operating ratios by which the business wants to measure its results, as well as management of assets. For instance, a company sets P&L percent of sales benchmarks for gross margin, pre-tax profit, and SGA. Actual results then are compared to those benchmarks with deviations explained. Such “high-level” bench marking focuses management on accomplishing targets, and additionally emphasizes areas of possible operating weakness.

Benchmarks ought to be set up based upon achievable goals which make sense in your industry and in your business. Unattainable benchmarks are dismissed as useless. Benchmarks which easily are achievable lack purpose. We always attempt to establish benchmarks to be on the aggressive side in order for them to function as a method of aligning the organization’s management to concentrate on efficiency of the whole operation in producing revenue, servicing clients, as well as managing working capital. The outcome is processes or costs that aren’t producing good returns easily are targeted. In addition, with bench marking, an organization might find it’s necessary to convert more of its fixed cost structure to a more variable cost structure in order to decrease risks and permit accomplishment of financial goals.

After benchmarks are agreed to, budgets must be set up that present a more in-depth road map as to how operating objectives will be accomplished. Budgets always should be compared to actual operations and any deviations explained. Benchmarks and budgets also will act as an inside audit function that highlights accounting issues, like timing problems for costs and revenues, or issues with collecting Accounts Receivable.

 For more information about our budgeting and bench marking services please feel free to get in touch with Burnish Bookkeeping LLC today at 910-231-9538.