The ATO is encouraging small businesses to use their small business benchmark tool to check the health of their business — but the benchmarks aren’t only a helpful tool. They are also another reason why regular documentation and recordkeeping regarding your business is essential. Let’s take a closer look:
What are Small Business Benchmarks?
The ATO’s small business benchmarks are business performance comparison tools created by compiling information from the tax returns and activity statements of small businesses in every industry throughout Australia. This information is then turned into a performance benchmark ratio for each specific type of business (such as restaurants or carpet cleaning services). Every year, the benchmarks are updated by the ATO with new data and to reflect the regular changes in the businesses.
The goal is to have a way for each business to compare their performance with their competitors, and to ensure that their business is within the range of these other, similar businesses.
Using the Performance Tool
You can measure the performance of your small business against a competing small business by downloading and using the business performance check portion of the ATO’s app (available in the Apple or Google Play stores) or by using the benchmark formula found on the ATO’s website.
What Does It Mean to Be Outside of the Benchmarks — and What Happens If You Are?
Most times, a business being above or below the benchmark range for their industry is actually just the result of a reporting or recording error in either your calculation or your paperwork, such as not lodging your return under the right business category (the business industry code) or not recording all of your sales. In this case, you simply need to correct the problem and recalculate. If you are confident that your records and calculations are accurate, however, then you’ll need to determine why it is that your business is above or below the range — because the ATO may contact you to ask that very question.
When a business is found to be above or below the benchmarks, the ATO usually requests further information regarding the reason for the difference, as well as to ask you questions to understand the problem.
Sometimes the variation is actually a good thing. Being below the benchmark, for example, could simply be the result of a high efficiency business. If you find that something like this is the case, just make sure that you have the receipts, reports, or other supporting documents to prove this to the ATO.
Of course, receiving a call from the ATO is nerve wracking no matter the reason. This is why you’ll be doing your peace of mind and your business a favor by both annually checking the benchmarks and keeping accurate records on your business. Solid record keeping skills will also be an asset at tax time.
Worried About the Benchmarks?
The small business benchmarks and the associated recordkeeping can be overwhelming. A TCA Darwin accountant can help you understand these performance benchmarks, and provide you with valuable business improvement services. Book a free, 30-minute Business Process Automation & Business Improvement Consultation to learn more about how we can make bookkeeping less overwhelming, and more streamlined. We’ll also let you know if your business qualifies for any grant funding initiatives.