How do you align final accounts with industry benchmarks?

1 Choose relevant benchmarks

The first step is to choose the benchmarks that are most relevant and appropriate for your business. Depending on your industry, size, location, and strategy, you may need to use different sources and methods to obtain and calculate your benchmarks. For example, you can use published reports, surveys, databases, or industry associations to find industry-wide or regional benchmarks. You can also use your own historical data, competitors' data, or best practices to create your own benchmarks. The key is to choose benchmarks that reflect the same accounting standards, policies, and periods as your final accounts.

2 Adjust your final accounts

The second step is to adjust your final accounts to make them consistent and comparable with your chosen benchmarks. This may involve reclassifying, consolidating, or eliminating some items in your income statement, balance sheet, or cash flow statement. For example, you may need to adjust your revenue or expenses for non-recurring or extraordinary items, such as gains or losses from discontinued operations, impairments, or restructuring costs. You may also need to adjust your assets or liabilities for differences in depreciation methods, inventory valuation, or lease accounting.

3 Calculate your ratios

The third step is to calculate your ratios using your adjusted final accounts. Ratios are useful tools to measure and compare different aspects of your business performance, such as liquidity, solvency, profitability, efficiency, or growth. You can use common formulas or industry-specific formulas to calculate your ratios. For example, you can use the current ratio, the debt-to-equity ratio, the return on equity, the gross margin, or the inventory turnover ratio. You can also use the ratio analysis function in your accounting software or spreadsheet to calculate your ratios automatically.

4 Compare your ratios with benchmarks

The fourth step is to compare your ratios with your benchmarks. This will help you to assess how well your business is performing relative to your industry or market. You can use tables, charts, or graphs to visualize and compare your ratios with your benchmarks. For example, you can use a horizontal bar chart to show how your ratios differ from the industry averages, or a spider chart to show how your ratios vary across different dimensions. You can also use the benchmarking function in your accounting software or spreadsheet to compare your ratios with your benchmarks easily.

5 Identify gaps and opportunities

The fifth step is to identify the gaps and opportunities between your ratios and your benchmarks. This will help you to pinpoint the areas where your business needs to improve or where it has a competitive advantage. You can use a gap analysis or a SWOT analysis to analyze and prioritize the gaps and opportunities. For example, you can use a gap analysis to quantify the difference between your ratios and your benchmarks, and to set targets and action plans to close the gaps. You can also use a SWOT analysis to identify your strengths, weaknesses, opportunities, and threats based on your ratios and benchmarks.

6 Monitor and review your alignment

The sixth and final step is to monitor and review your alignment with your benchmarks regularly. This will help you to track your progress and performance, and to make adjustments as needed. You can use dashboards, reports, or alerts to monitor and review your alignment. For example, you can use a dashboard to display your key ratios and benchmarks, and to highlight any deviations or trends. You can also use a report to summarize your alignment results and recommendations, and to communicate them to your stakeholders. You can also use an alert to notify you of any significant changes or issues in your alignment.