This simple question can mean different things to different people. But when you step back, can you really answer this question? You are most likely monitoring the financial health of your business by closely scrutinizing your financial statements. You are probably even internally benchmarking your own performance. Internal benchmarking can help you to quickly identify potential issues within your organization and steer them back into line before they get too far off track. Is that enough?
External benchmarking can provide you with critical insight.
External benchmarking helps you to evaluate the effectiveness of your organization to other companies within the manufacturing segment. Externally benchmarking your company financials will provide you with key insights that show you where your company excels and point out areas that need attention. This information can be the foundation to help you develop strategies to steer your company in the right direction. For example, it will help you to:
- Identify and improve critical analytics such as days outstanding, inventory turnover, gross profit margin, and debt to equity ratio
- Address major strategic issues such as sales per employee or cost of goods sold
- Understand the performance trend – How have similar companies performed over the past 12 months, in 2014, 2013 and over the past 5 years.
- Develop a plan to improve financial performance such as beef up collection efforts, change payment frequency to vendors, and determine if reduced inventory levels are a viable option for your customer base, or review labor costs.
- Develop new products/services – If long-running product lines are seeing a squeeze in margins, it may be time to see if a new, innovative product or service should be considered.
The results of an external benchmark can be the key to turning where you currently are into the vision of where you want to be.
If you would like to have an external financial ratio benchmarking analysis performed on your manufacturing company please contact your MarksNelson professional at 816-743-7700.