Benchmarking accounting compares performance and business processes to the best practices of other businesses in a similar field or industry. This allows you to assess the company’s efficiency, productivity, and competitiveness. If you’re responsible for evaluating a company’s financial performance, it may be important to learn about benchmarking accounting.
In this article, we define benchmarking accounting, explain its benefits, and list nine steps in this process.
What is benchmarking accounting?
Benchmarking accounting is a process in which you compare a company’s performance to a set goal or number to determine how its efficiency, productivity, and competitiveness compare to industry standards. This financial analysis and comparison aim to help the company set financial performance and budget-related goals. By looking at benchmarks in the industry, you can have a better idea of what areas the company is supposed to improve.
Companies often compare their time, quality, and cost to similar firms. Knowing the industry’s best practices can help you determine if you’re meeting these benchmarks. You can learn a lot about what the company is doing well and where there’s a need for improvement.
Benefits of benchmarking accounting
Here are some of the main benefits of benchmarking accounting:
Learn your strengths
While this process requires the company to compare itself to the best in the industry, it may help you discover the company’s strong points. You may find that a certain business area exceeds the industry standards. Knowing the company’s strengths can give you some leverage against the competition. You might be able to find ways to make these strengths even better or to use them as a way to differentiate the company from the rest.
Set better goals
Having benchmarks can be a helpful starting point when helping the company set goals. Considering the competition can be helpful when finding ways to stand out in the industry. If one company is performing well, you can use this analysis to determine what your employer can do even better.
Improve systems and processes
Using this comparison method can help you pinpoint exactly what systems and processes the company needs to improve. If one company is quite successful, you can use benchmarking accounting to see what processes you might try to model after them. This process can also help you determine if the way the company operates is efficient or needs some reworking.
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Some companies use this process to compare their various locations to one another. For instance, retail stores may measure the success of each location, ranking how they’re doing relative to one another. The stores at the bottom of the list might require more of the company’s attention. This benchmarking aims to have all the locations exceed the company’s goals and benchmarks.
When setting new budgets for your teams, benchmarking accounting can help you learn if you’re spending too much or too little in a certain area. You might even find that your budget is effective, meaning you can keep it the same in the future. Looking at the spending of similar companies can tell you a lot about your budget.
9 steps of benchmarking accounting
Here are the nine steps of benchmarking accounting:
1. Choose a subject
Start the benchmarking process by choosing which area of the company you’re going to analyze. Meet with the key stakeholders in the company to decide what you want to collect and measure. This initial selection process is integral to improving your processes and business decisions.
2. Pick which entities you wish to benchmark
Since there are different kinds of benchmarking, you need to decide which companies you may want to consider. With internal benchmarking, you may look at the practices within the company. If you’re going to look at external forces, consider comparing the company to other firms in the industry. Try to pick firms you know are doing well so you can compare the company to its top competitors.
3. Look at your current processes and gather data
Before looking at the processes of others, create a detailed document about your own. The more information you gather about the company, the more you’re going to be able to compare. Identify the areas on which you’d want to work.
There are many ways to collect the data you need for this process. Remember that some of the information you’re seeking might be private or confidential. The competition may try to keep this data within the confines of their company. See what you can find through online research, conversations, interviews, and questionnaires. You may even be able to reach out to a company’s former employees to see what they can share.
4. Analyze data and compare your performance
Now that you have all your data, meet with the company’s key stakeholders to discuss it. Determine if there are any trends or patterns the company needs to start following. Use this meeting to decide if you’re going to need to collect even more information. Compare the detailed information you collected about the company to the data you found. Ask your team the following questions:
What might happen if we don’t implement any changes?
What might happen if we implement changes?
What are we doing well?
What can we improve?
What industry trends are we noticing?
5. Set a plan
Meeting with stakeholders can help you develop a plan to move forward. Try to reach a group consensus about which areas of the business need the most improvement. If you have limited resources, you need to determine which areas are the most important. Use your plan to delegate spending and effort to implement the system and process changes.
6. Start making changes
Now that you have a plan, it’s time to start making changes. Ensure your whole team knows the company’s new goals and expectations. Setting clear timelines can help your team ensure they’re doing what they need to do to meet your goals on time.
7. Restart the process
Once you’ve made changes, your team can repeat the benchmarking process. While you may have the information about the competition, you may need to reassess how the company is doing. Start collecting the results of the changes you made.
8. Monitor the results
Analyzing the results of your changes is how you can tell if your plan is working. You may find that some changes are helping the company while others need tweaking. Use this reassessment to decide what you can continue doing and what you need to change. It may take some trial and error before you create the ideal plan.
9. Determine when to repeat
At the end of this process, determine how often you want to use the benchmarking method. Create a schedule to compare periods to one another. Make sure to keep detailed notes of what changes you make and the results you find within one benchmarking period.
I hope you find this article helpful.