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What is Financial Benchmarking?

Key performance standards, called financial benchmarks, help businesses identify opportunities for improvement. Financial benchmarking creates a framework for measuring and comparing financial data to other organizations. The process involves collecting and analyzing internal and external information, such as profits, costs, and industry-specific ratios. 

The data type and quality affect your benchmarking financial analysis, while the format impacts its effectiveness. A well-designed report tells a financial story and enables strategic decision-making. Learn how your firm can improve benchmarking services and empower the small businesses you serve.

Why is Financial Benchmarking Important in Business?

To be competitive in the future and ensure continuous improvement, leaders need to understand the hidden drivers of poor financial performance while identifying opportunities. Unfortunately, “just 29% of respondents said that they had a good understanding of where their organization stood in relation to the finance functions of comparable enterprises,” according to Accenture’s High-Performance Finance study.

Fresh, accurate benchmark performance data delivered in a user-friendly format provides value to clients, allowing them to evaluate their strengths and weaknesses. Financial benchmarking helps clients create financial value, mitigate risks, and uncover opportunities. Consequently, financial benchmarks are integral to decision-making, and supplying them to your clients gives your institution a competitive edge. 

Seize Opportunities

Staying stagnant isn’t an option for businesses. Instead, companies must continually assess the market and adapt their offerings accordingly. However, finding opportunities and successfully taking advantage of them can be challenging. It’s risky financially and reputationally, and the wrong moves can be disastrous for companies of any size.

Advisory firms can confidently counsel clients on how to leverage their strengths and deliver the products and services their market expects. Reliable benchmarking data highlights service gaps in local areas, helping business leaders break into new segments and provide a cutting-edge experience.

Assess Risk

Whether it’s an economic downturn or supply chain bottleneck, market changes can threaten a company’s stability and prevent them from achieving business goals. Yet, outdated information negatively impacts a benchmarking financial analysis. It doesn’t allow a company to act on the latest insights and successfully mitigate risks.

The right financial benchmarking tools help your firm identify and prepare clients for market shifts. You can notify clients if performance has changed or costs have increased according to industry and sub-segments within North American Industrial Classification System (NAICS) codes. By comparing a company to industry financial KPIs, leaders have the appropriate data to understand their shortcomings and turn them into opportunities. 

Create Value

Today’s small to mid-sized businesses want financial firms and accounting professionals that can serve their needs as they grow. Although financial benchmarking is critical throughout a company’s lifecycle, you can build on your services by offering exit planning, value building, outsourced CFO services, and more.

How to Create Insightful Financial Benchmarks

Outdated information that isn’t location-specific can skew results. For financial benchmarking to be compelling and actionable, firms must use high-quality data to compare ideal industry peer groups. The result should be easy to understand, allowing decision-makers to gain (and share) valuable insights with stakeholders. Here’s how to ensure your financial benchmarking analysis helps organizations visualize a path for betterment.

Find the Right Data Sources

Generic industry data is widely available. But your clients want detailed information that drills into specifics at the granular level. Also, data providers should update it frequently to equip companies with the latest insights, giving them a heads-up when it’s time to pivot operations. 

Keep clients a step ahead of the competition by choosing a data provider with:

  • A comprehensive data quality control system to ensure accuracy
  • US market data at the national, state, metro, and county level
  • Information on industry segments and specialty sub-segments 
  • Robust filtering tools for custom parameters 
  • Access to public, private, and web statistical data sets

Ensure the Comparison is Clear

Effective benchmarking tools do more than provide data; they deliver evidence-based, easy-to-read insights. Indeed, a valuable financial benchmark creates a foundation for improvement with a current state assessment and in-depth comparison. It allows advisors to share custom reports showcasing the similarities and differences between an industry peer group. 

Your financial benchmarking solution should offer:

  • Variance tables, summary scores, and ratio analyses 
  • Personalized data inputs and uploads
  • In-depth reports with P&L and balance sheets
  • Dynamic commentary and various chart and table formats
  • Customizable branding and display options

Build the Narrative

A financial benchmark analysis supplies facts required to assess and improve financial performance. But, it should go beyond shallow explanations and spreadsheets. Financial storytelling is instructive and engaging, incorporating written explanations, data visualizations, and data highlights. It comprises various elements that guide your audience through each point and ends with clear takeaways. 

A compelling narrative can be turned into an interactive presentation to generate buy-in, delight stakeholders, and implement change. You can help organizations understand their financial story and make strategic decisions as they write new chapters.

Financial Benchmark Examples

Most financial benchmark examples include information about the advisory firm, methodology, and quality control. It also provides a glossary, which helps clients standardize terms for core financial processes. These basic details increase credibility. But, financial benchmark examples will have varying degrees of complexity, with advanced solutions offering dozens of statement and balance sheet data along with financial ratios, such as profitability, debt risk, and cash flow solvency. 

Before selecting a data provider, check out an interactive sample report to see potential data points and customization options. Look for tools that give access to decades of historical data and use an easy-to-understand scoring system.

Improve Your Benchmarking Financial Analysis

Differentiate your firm by furnishing small businesses with insights that drive results. Bizminer Financial reports enhance your offerings and benchmarking capabilities, allowing your company to provide advisory services at scale. With over 20 years in the industry, Bizminer delivers granular industry statistical profiles at the national and local levels down to the zip code. Create an account today to start building your report.

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