What is the next step?
Once you’ve established your benchmarks, you’ll need to assemble the data you need to measure them. Again, your financial advisor can be a good partner in the process.
Make sure that you’re working with complete information that is relevant to what you’re measuring. A single financial statement from five years ago won’t provide an accurate representation of what you were doing back then, and a marketing summary that confidently predicts you’re going to double your gross revenues next year isn’t a reliable guide to the future.
Last, when you’ve collected all the information, keep it together — benchmarking should become a regular part of your financial operations. If you report financial information every quarter, benchmark every quarter, too.
How should various levels of management be involved?
Your line supervisors may be more concerned with daily production than achieving financial benchmarks. However, with education and incentives they can be more focused on improving the ROI. Along the same lines, middle managers will likely benefit from an explanation of the basics of cost and profit and from showing them how much influence they have on the overall financial health of the company. Of course, upper management should be involved in the entire benchmarking process, from inception to monitoring to affecting changes in performance.
After all, if your managers aren’t fully engaged, they won’t help you address the findings with action plans and follow through. For example, it’s one thing to know your equipment maintenance costs are on the rise; it’s another to have managers who are determined to ferret out why and be aggressive in turning them around.
Gerry Herter is partner-in-charge of the Accounting & Audit department at HMWC CPAs & Business Advisors in Tustin. Contact him at (714) 505-9000 or [email protected].
