Benchmarking: Are you winning or losing in business? Michael A. Bohinc, CPA Owner, Keeping Score, Inc.

Transcription

1 Benchmarking: Are you winning or losing in business? Michael A. Bohinc, CPA Owner, Keeping Score, Inc.

2 About the Presenter Michael Bohinc is a CPA in Cleveland, Ohio and the owner of Keeping Score, Inc., an accounting and business advisory services firm that Michael started to help small business owners improve their profitability and business operations. He is anassociate member of both the PHCC of Ohio and ACCA of Ohio. He is also a Consult & Coach Partner for the Service Roundtable. Michael has served as the Chief Financial Officer of Norhio Plumbing, Inc., his family s plumbing company in Aurora, Ohio for over 22 years. Michael has helped create, develop and implement many current business and marketing programs being utilized by Norhio Plumbing and other businesses. Michael was also the majority owner of an HVAC-service company for 6 years until he sold his stake in the company in 2000 to focus on his other business interests.

3 Today s Game Plan What is benchmarking? Benchmarking vs. benchmarks Why is it important? Types of benchmarking Process Performance Financial Strategic The benchmarking cycle 7 steps in the process What can we benchmark Financial Benchmarking in the PHC Industry How do I compare Industry data resources Questions/Wrap Up

4 There are a number of definitions for the term Benchmarking Benchmarking. - originally used in land surveying a reference point in determining one s current position or altitude in topographical surveys - early 1980s Xerox case study; compare your performance to the performance of others; (how do you stack up?) - then evolved into best practices benchmarking; an ongoing process; how work gets done; no need to reinvent the wheel ; - benchmarking is NOT just numbers crunching or just copying something another company is doing well

5 Benchmarking is a process. Implement & Monitor Results What to measure How to measure? Develop Action Plan(s) Who to measure against? Analyze Data Measured Collect Measurement s (Data) Benchmarks are measurements (statistics, ratios, data) used to determine performance in a specific area.

6 Quite possible the ultimate book of benchmarks with one categorical exception ironically, business. Next: Why?

7 Why Benchmarking? - It helps you find out where you re at and can help you plan where you are going. - It shows you how you re doing.not only internally but externally as well. - If it s not measured, it s not managed. - Benchmarking accelerates improvement/change in performance (Example: l Golf Any golfers in attendance?) Next: Types

8 Types of Benchmarking (internal & external) - Process (i.e. customer service, billing, shipping/receiving, etc.) - Performance (comparing products & services) - Financial (F/S analysis, employee compensation, marketing, inventory, etc.) - Strategic (best of the best winning strategies no matter the industry classification; comparing structures, practices, cultures, pricing, products, services, etc.) Next: The Process Cycle

9 The Benchmarking Cycle What to measure Implement & Monitor Results How to measure? Develop Action Plan(s) Who to measure against? Analyze Data Measured Collect Measurements (Data)

10 STEP 1: What process/function should I measure? -Example: Customer satisfaction STEP 2: How should I measure it? (KPIs) -Example: Survey customers after service is complete using grading or numerical scale to assess satisfaction. STEP 3: Who should I measure against? -Example: - Internal: prior periods, budgets/goals; - External: local & national competitors within the PHC industry; companies OUTSIDE the PHC industry i.e. Disney, Ritz Carlton, Nordstrom

11 STEP 4: Collect & review the data - Example: Customer satisfaction surveys, response cards, etc. STEP 5: Analyze the data measured - Example: Compare customer satisfaction results with internal & external data sources STEP 6: Determine action plan/improvements to be made - Example: Increase % of customers satisfied by 5% within the next 6 months. STEP 7: Implement action plan/improvements & monitor results - Example: Call previous day s appointments and thank them for their business; immediately address any concerns they may have; Next: Outside the box

12 Square Watermelon Next: What can we benchmark

13 What can we Benchmark? Benchmark Items SAMPLING of Items: Marketing Source Tracking # of jobs performed Inventory shrinkage # of walks Avg. Sale # of new clients Avg. # of tasks (FR service) # / % Callbacks Avg. time to perform each task/job % of appointments late Avg. Direct Labor Costs Avg. # of minutes late Avg. Employee Benefits Service/Maintenance Agreements sold Lost Time Accidents Add ons Sold (i.e. Bio Clean) Avg. Lost Time per Accident Next: Financial Benchmarking/KPIs

14 Financial Benchmarking (also known as key performance indicators or KPIs) SAMPLE - PARTIAL List of Benchmarks: Financial Ratios: Gross Profit % Net Profit % Return on Equity % Quick Ratio Inventory Turnover A/R Turnover A/P Turnover Productivity Ratios: Sales (revenue) per employee Tasks (jobs) per employee Billable % Hours sold per employee Conversion Rate Marketing Benchmarks: Marketing - % of total sales Cost per call Cost per new customer Customer Satisfaction Benchmarks: Customer Satisfaction % or rating # of customer complaints Cost per customer complaint etc.

15 Financial Benchmarks in the Plumbing-Heating-Cooling Industry USA Private Companies $1-10 Million in Sales Income Statement Sales (Income) Recent (352) 2009 (427) 2008 (683) All Yrs (5114) % 00% % 00% % 00% % 00% Cost of Sales (COGS) 68.66% 68.49% 66.15% 67.10% Gross Profit 31.34% 31.51% 33.85% 32.90% Depreciation 1.48% 1.41% 1.58% 1.57% Overhead Expenses 24.23% 24.46% 24.37% 24.53% Other Operating Income 0.07% 0.08% 0.09% 0.05% Other Operating Expenses 3.12% 3.15% 4.59% 3.18% Operating Profit 2.58% 2.56% 3.39% 3.67% Interest Expense 0.63% 0.63% 0.63% 0.62% Other Income 0.42% 0.40% 0.29% 0.31% Other Expenses 0.26% 0.24% 0.25% 0.20% Net Profit before Taxes 2.47% 2.44% 3.15% 3.71% 2010 Keeping Score, Inc. & Profit Cents

16 Financial Benchmarks in the Plumbing-Heating-Cooling Industry USA Private Companies $1-10 Million in Sales Balance Sheet Recent (352) 2009 (427) 2008 (683) All Yrs (5114) Cash (Bank Funds) 14.13% 14.09% 13.20% 13.28% Accounts Receivable 36.92% 37.35% 37.45% 37.38% Inventory 7.53% 8.14% 8.11% 7.51% Other Current Assets 7.39% 7.29% 6.67% 6.73% Total Current Assets 73.94% 74.02% 73.32% 71.87% Gross Fixed Assets 72.68% 73.23% 86.62% 60.03% Accumulated Depreciation 51.09% 51.59% 64.07% 35.12% Net Fixed Assets 21.60% 21.64% 22.56% 24.91% Other Assets 4.46% 4.34% 4.13% 3.21% Total lassets % 00% % 00% % 00% % 00% Accounts Payable 23.28% 23.52% 21.78% 21.30% Current Portion of L. Term Debt 6.54% 6.04% 6.52% 4.83% Other Current Liabilities 16.42% 17.71% 71% 18.71% 19.23% Total Current Liabilities 50.71% 51.16% 49.40% 46.84% Total Long Term Liabilities 22.16% 21.71% 23.31% 20.21% Total Liabilities 72.87% 72.88% 72.71% 67.05% Ending Retained Earnings 24.77% 25.29% 29% 22.03% 20.10% Total Equity 27.13% 27.12% 27.29% 32.95% Total Liabilities & Equity % % % % 2010 Keeping Score, Inc. & Profit Cents

17 Financial Benchmarks in the Plumbing-Heating-Cooling Industry USA Private Companies $1-10 Million in Sales USA Private Companies: $1-10 Million sales Financial Metric Recent (352) 2009 (427) 2008 (683) All Yrs (5114) Quick Ratio Gross Profit Margin 31.34% 31.51% 33.85% 32.90% Net Profit Margin 2.40% 2.55% 3.51% 4.28% Debt-to-Equity to Ratio Return on Equity 10.55% 10.96% 14.73% 16.76% Return on Assets 4.79% 4.69% 6.93% 8.26% Growth Metric Recent (167) 2009 (201) 2008 (308) All Yrs (2110) Sales Growth % -8.73% 4.08% 6.80% Profit Growth % % 2.12% 4.27% 2010 Keeping Score, Inc. & Profit Cents

18 Sources of benchmarking information: Free sources: US Dept. of Labor, US Census Bureau, IRS Corporate Sourcebook and annual reports of public companies; Pay sources: Dun & Bradstreet, Risk Management Association (RMA the one banks & insurance companies use), for public companies information. Some industry associations have best practices groups that provide benchmarking data for their participants. Next: Review/Wrap up

19 Today s Game Plan What is benchmarking? Benchmarking vs. benchmarks Why is it important? Types of benchmarking Process Performance Financial Strategic The benchmarking cycle 7 steps in the process What can we benchmark Financial Benchmarking in the PHC Industry How do I compare Industry data resources Questions/Wrap Up

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21 Michael A. Bohinc, CPA Owner, Keeping Score, Inc. (440) p John Zink, V.P. Education & Programs, Foundation zink@naphcc.org