Wednesday, January 26, 2011

Financial benchmarking for small business

What Does Actually Financial Benchmarking Mean?

When you are in any industry and you want to compare the potential of your company, in terms of the increased profits, competencies, growths and deductions in cost per units with the other companies in the same industry, this whole process and technique is known as benchmarking. Many companies follow benchmarking, because by this they get to know, which area to emphasize on. Small businesses can come up with more feasible business plans if they practice benchmarking in the very initial stages. For instance Canada has some great small business benchmarking data, let’s say about 30 performance benchmarks are available on the data-base.

Why Benchmarking Is Beneficial?

We always think about the reason, to adopt any thing. Similarly, when it comes to benchmarking there is a definite and strong reason behind it. Companies need to develop certain schemes and plans for the continuous improvement and efficiency. Small business must know before entering in any industry that, which are the best practices present in the industry. Some like to investment in the production, because of the mass market. But it could also be possible that, rather then having a huge production, one should emphasize more on the marketing and advertising, so that awareness of the brand is created amongst the customers and consumers. This can be extracted by involving one’s self into following the benchmarking reviews. These are the most important measures which can be used to assess one’s business and future entrepreneur.

Common Financial Benchmarking Tools

There are certain financial benchmarking tools to assess the standing and feasibility of any particular business. For instance financial ratios play a significant role in such purpose. One should be aware of the particular areas in the business, which are performing exceptionally well and some being mediocre whereas the others being the worst ones. These stages can be known through financial tools commonly known as the financial ratios. Some of the most popular and accepted financial ratios are Quick Asset Ratios, Debt Ratios, Profitability Ratios and Liquidity ratios. These ratios and others too, should be checked over a certain tenure or period. Mostly companies take the ratios for over 4 years and at times 5 years, so that they may find a gradual and systematic trend. These trends help in knowing the consistency, improvement and decrease in companies’ performances, depending upon the results of the financial ratios.

Appropriate Use of Financial Benchmarking

Every business conducts different kinds of surveys, to know the personal likings and tendencies towards their products. These activities are done to make one’s brand strong and impact full in the perceptions of the customers. Similarly companies should also practice financial benchmarking so as to understand the trend of the market and know in advance the next move of the competitors. There are always plans to which any company stick to, as if you don’t have any plan, you are planning to fail. But by doing certain exercises one can easily be pro-active rather then re-active. Formation of contingency planning is very essential for a business entity, but when to adopt that planning is the essential question, which can only be answered by using the earlier stated financial tools and techniques. In today’s’ fast pace world, where even small businesses are on cut-throat war with one an other, it is very essential and significant to find a way before hand rather to re-act to any strategy implemented by the other businesses. Small business can benefit their selves by practicing on benchmarking and knowing the norms and conditions of the market. This is the way they can stay in the business for a longer period of time and enjoy ample profits to satisfy their needs.

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