benchmark analysis

Running a business, big or small, comes with a set of difficult obstacles that must be successfully tackled before becoming truly successful. This is evident in the statistics surrounding small business failure:

  1. One out of four businesses fail within their first year of operation.
  2. Half of businesses fail after their fourth year of operation.
  3. Inadequate cash flow or sales were cited as the cause of 5.2% of business failures between 2013 and 2014.

While these statistics may seem terrifying to some, there are a large number of business owners who decide to take a stab at entrepreneurship without properly educating themselves beforehand while continually educating themselves throughout the duration of ownership. One of the processes that is most important on the logistical side of running and operating a business is benchmark analysis.

Benchmark analysis is the comparison of the processes and metrics of a business to industry standards and bests. Quality, time and cost are typically the most commonly measured dimensions in benchmark analysis.

As a key aspect of running an business with optimal success, benchmark analysis intends to identify areas of operation that need improvement, what those improvements need to be and how to make them. This is done with the help of financial data analysis software, key ratio analysis of financial statements, and industry average financial ratios.

Keep in mind that it’s unfair to compare each aspect of your business to another without taking variables and differences into account. Each business is individual and should be treated as such. However, comparing your business model to an industry-leading business model can unveil some problematic practices that were overlooked previously.

Within the scope of world leaders in the business world, there are many commonalities and similarities that offer insight into what it takes to succeed. By examining these common threads, business owners of all sorts can better their enterprise while improving their probability of success.