Benchmark Budgeting with QuickBooks 2012 - dummies

Benchmark Budgeting with QuickBooks 2012

By Stephen L. Nelson

One very powerful but unfortunately infrequently used budgeting technique is benchmarking. You should know how to use benchmarking when budgeting with QuickBooks 2012. Benchmarking compares your actual or your preliminary budgeted numbers to the same numbers of similarly sized businesses in your industry.

For example, CPA firms spend money on a tax library. Annual fees for a tax library can run from as little as $100 or $200 a year to roughly $30,000 a year (these amounts are fees for a sole proprietor, by the way). How do you know what number is an appropriate budgeted amount?

Well, if you know what other CPA firms or other sole proprietor CPAs are spending on their tax libraries, that information can probably help you to budget what you should or can spend. The challenge, of course, is getting that comparable information.

Fortunately, getting comparable information is easier than most people realize. You can usually get information about the financial statistics of comparable firms in two different ways:

  • Your local library: You can usually find several good sources of general financial statistical information about businesses of varying sizes and in varying industries. For example, Dun & Bradstreet, the Risk Management Association, Robert Morris & Associates, and a fellow named Leo Troy all publish annual summaries of financial ratios and financial statistics based on several sources.

    If you trot down to the library and visit the reference desk, you can get the librarian’s help in locating one or more of these reference sources. Suddenly, you have a wealth of information at your fingertips. You can see how much the average tavern spends on beer and peanuts, for example. You can see how much the average restaurant spends on advertising.

    In other words, you can see detailed financial information on a business exactly like yours!

  • Industry associations: In addition to the general information available from reference sources commonly stocked at your local library, many industry associations and professional groups collect and publish industry-specific financial information.

    For example, the American Electronics Association members participate in a survey of financial information of member firms in the association. That survey gives AEA members good statistics about average salaries spent for different positions, inventory investment, certain administrative expenses, and so forth.

    Continuing with the example of CPAs buying tax libraries, two industry associations — the Texas Society of Certified Public Accountants and the American Institute of Certified Public Accountants — publish statistics for CPA firms. These publications identify what the average sole proprietor spends on his tax library.

You shouldn’t use just one approach to build your budget. You may use top-line budgeting for some of your numbers, and you may use zero-based budgeting for other numbers. And for really important or key numbers in your budget, you may take the time and effort to benchmark your numbers against those of similarly sized firms in your industry.