What is Small Business Benchmark?
ATO provides standardised expense-to-revenue benchmarks across various types of industry which small businesses owners compare their performances against standardised data. Small business owners can use the benchmarks as a tool to understand, analyse and review their business performance.
Why is Small Business Benchmark important?
Each business is allocated with industry code when they lodge tax returns to ATO. It uses the data collected from tax returns to generate the benchmarks for each industry. As benchmarks consider expense-to-revenue ratio, ATO uses the data to filter any business that is performing outside the benchmarks. Therefore, a business with its performance over benchmark values are at a risk for ATO audits. You must be well prepared to provide information for an ATO audit if your business is performing outside these benchmarks.
How can I interpret the Small Business Benchmarks?
ATO website provides a list of small business benchmarks according to industry or in alphabetical order. The benchmark consists the percentage of various types of expenses against the revenue such as the following:
For example, according to the table below which is available from ATO website, a restaurant business with its annual turnover of $700,000 can expect its performance using the benchmarks -labour at 23-31%, rent expense at 9-14%, and cost of sales at 33-37%.
- Cost of sales/Turnover
- Total expenses/Turnover
- Non-capital purchases/Sales
- Labour/Turnover
- Motor vehicle expenses/Turnover
- Rent expenses/Turnover
Where can I find Small Business Benchmarks?
You can search for “Small Business Benchmarks” from ATO website. Not all industries have their own benchmarks, however most major including restaurant, beauty services, tiling services, and so on, are listed in ATO website.
*Note that above information is for general use only and is not intended to substitute for a professional tax advice. You must always seek a professional advice from an accountant to avoid unlawful acts.
