When faced with the media storm of news surrounding the economy, many corporate leaders assume that a drop in sales and other business trends is the norm. However, if companies are not conducting historical trend analysis and industry benchmarking, they may not have all of the relevant facts necessary to prepare meaningful forecasts or measure performance against other businesses within their industry.
“Many businesses are falling into a similar thought pattern, assuming all businesses are experiencing the same troubles — and thereby, the same results. They assume this is the norm based on current market conditions,” says Robert Olszewski, CPA, director in the Audit and Accounting Group with Kreischer Miller. “As we move through these volatile times, companies should be benchmarking against their industry group and performing a critical assessment of the historical trends of their own business. Historical trends tell the story of where you have been, where you currently are and assists in forecasting for where you would like to be.”
Smart Business spoke with Olszewski about using both historical trend analysis of your business and benchmarking within your industry to aid in strategic decisions and help you stay ahead of the curve.
Why should companies use historical trend analysis and industry benchmarking?
Over the past year, businesses have routinely asked how everyone else is faring through the economic turmoil. Their questions can be quantitatively addressed using historical trend analysis and industry benchmarking.
Historical trend analysis provides the financial story of a business in recent years and assists in monitoring the impact of key decisions. Benchmarking is the process of comparing business performance metrics against other businesses operating within a similar industry, provides a snapshot of the performance of your business and aids in assessing yourself against the competition.
Benchmarking within a specific industry often tells a unique story. For example, over the past year, a business maintained consistent sales but the gross profit percentage eroded. The management team thought they were operating above average based on what they had routinely witnessed on the news. To their surprise, the industry benchmarking indicated that, on average, sales within their industry were up 5 percent and the gross profit percentage had remained relatively consistent.
Business leaders often find a great deal of value in historical trend analysis and industry benchmarking. Both processes provide an opportunity to step back, compare and subsequently monitor.
