Benchmarks Or Budgets – What Really Matters?

Most businesses compare their actual financial results with their budget but what really matters is comparing them with benchmarks.

Budgets often have important flaws. They may be too low (easy targets for bonus purposes) or too high (so-called stretch targets that just demotivate). They may be out-of-date (almost certainly as they’re based on assumptions made before the beginning of the financial year – good luck with all those assumptions remaining valid for the whole year in these unpredictable times). They may be too detailed which diverts managers’ attention from important to insignificant things.

Better comparison is with industry and other benchmarks which tell you how you’re performing against your competitors. And that’s what really matters.

All businesses compete (even not-for-profits and government departments compete for funds) so it’s important to know how you’re fairing – globally.

Profit margins, working capital, financial returns and other benchmarks are usually available from various sources such as industry associations, companies that sell benchmark data, governments (sometimes) and elsewhere. Just search online, ‘Benchmark data for (your) industry’.

Benchmarking is what really matters.

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