Free tool
How does your business compare?
The ATO publishes what businesses in 100 industries actually spend, drawn from real tax returns. It is the closest thing to an honest industry average that exists in Australia, and almost nobody uses it. This puts your figures against it, and tells you what the gap usually means.
ATO benchmark check
Worked from figures entered by the reader. Indicative only, and not advice of any kind.
Both ratios sit outside the middle of the industry.
Still not a finding. But two ratios moving together usually has one explanation rather than two, and finding it is worth more than either number on its own.
Total expenses to turnover
Industry 81% to 90%
79.6%
Cost of sales to turnover
Industry 35% to 41%
44.4%
Turnover band
$250,001 - $600,000
The ATO publishes a different range for each.
Gross margin
55.6%
What is left after direct costs.
Net margin
6.5%
Before the owner is paid.
Total expenses to turnover
1.4% below the range, worth about $7,200 a year at this turnover
The business spends less of every dollar than the middle of its industry. That is often genuine efficiency and worth knowing. It can also mean costs are missing: an owner working unpaid, family labour, or maintenance deferred rather than avoided.
What to look at
- Ask what a replacement for the owner would cost, and whether that figure is anywhere in these accounts.
- Check whether anyone else works in the business without being paid at market.
- Look at repairs and maintenance across several years. A business can look lean for a while by not spending on the assets.
- If the efficiency is real, it is a genuine strength, and it is worth being able to show why.
Cost of sales to turnover
3.4% above the range, worth about $17,800 a year at this turnover
Stock and direct costs take more of every sale than they do in the middle of the industry. That is buying, pricing, wastage or loss, and which one it is matters a great deal to what the business is worth.
What to look at
- Compare buying terms against the industry. A few points on cost price is the whole variance in most cases.
- Look at discounting. Sustained price cutting shows up here rather than in revenue.
- Check wastage and stock loss. In food and retail this is routinely the difference, and it is measurable.
- Reconcile stock on hand to purchases. A gap between the two is the classic sign that the loss is not wastage.
- The published range covers only about 30% of the industry around the average, so roughly seven businesses in ten sit outside it while trading perfectly normally. Read this as where you sit relative to the middle, not as a pass or a fail.
Comparison only, on the figures you entered, against ATO published benchmarks. It is not tax advice, not a review, and not a finding of any kind. Your tax position belongs with a registered tax agent. Gross margin here is $289,000 of every $520,000 of turnover.
Read this before you panic
Outside the range is the normal place to be.
The ATO builds each published range to cover about 30% of an industry around the average. Not most of it. About a third of it. Which means that by construction, roughly seven businesses in ten sit outside the range for their industry while trading completely honestly.
So the range is the middle third, not the band of normal. Being outside it is not a finding, it is not a red flag, and the ATO itself says it never uses benchmarks in isolation when deciding to look at a business.
What is worth your time is the direction and the size of the gap. A cost of sales ratio eight points above the industry has an explanation, and it is usually one of four or five things. Finding out which one is useful whether you are selling, borrowing, or simply want to know why the business feels tighter than it should.
The method
Four figures, and one of them is a trap.
The arithmetic is division. Getting a right answer is entirely about putting the right things in, and the ATO defines each input more precisely than most people expect.
| Figure | What goes in it | What catches people out |
|---|---|---|
| Turnover | Sales of goods and services, excluding GST. | Every ratio is a percentage of this. Enter it GST inclusive and every answer on the page is wrong. |
| Total expenses | Everything the business spends, including cost of sales, less what is paid to you and your associates. | That deduction is the one people miss. The ATO's own example has a tradesman come out at 120% of turnover purely because he left his own wages in. |
| Cost of sales | Stock and direct costs. Excludes wages. | Businesses that bundle kitchen or workshop wages into cost of sales have to strip them out first, or the comparison is against a different definition. |
| The published range | The ATO's band for your industry and turnover, from the 2023-24 benchmarks. | Built to cover about 30% of the industry around the average. It is the middle third, not the normal band. |
Turnover
- What goes in it
- Sales of goods and services, excluding GST.
- What catches people out
- Every ratio is a percentage of this. Enter it GST inclusive and every answer on the page is wrong.
Total expenses
- What goes in it
- Everything the business spends, including cost of sales, less what is paid to you and your associates.
- What catches people out
- That deduction is the one people miss. The ATO's own example has a tradesman come out at 120% of turnover purely because he left his own wages in.
Cost of sales
- What goes in it
- Stock and direct costs. Excludes wages.
- What catches people out
- Businesses that bundle kitchen or workshop wages into cost of sales have to strip them out first, or the comparison is against a different definition.
The published range
- What goes in it
- The ATO's band for your industry and turnover, from the 2023-24 benchmarks.
- What catches people out
- Built to cover about 30% of the industry around the average. It is the middle third, not the normal band.
A worked example
When the margin looks too good.
A coffee shop turning over $610,000, with cost of sales of $168,000. That is a gross margin most operators would be delighted with, and it is exactly the pattern that gets a second look, from a lender as readily as from the ATO.
Both ratios sit outside the middle of the industry.
Still not a finding. But two ratios moving together usually has one explanation rather than two, and finding it is worth more than either number on its own.
Total expenses to turnover
Industry 86% to 93%
81.5%
Cost of sales to turnover
Industry 33% to 38%
27.5%
Turnover band
More than $600,000
Selected from the turnover.
Gross margin
72.5%
After direct costs.
Total expenses to turnover
4.5% below the range, worth about $27,600 a year at this turnover
The business spends less of every dollar than the middle of its industry. That is often genuine efficiency and worth knowing. It can also mean costs are missing: an owner working unpaid, family labour, or maintenance deferred rather than avoided.
What to look at
- Ask what a replacement for the owner would cost, and whether that figure is anywhere in these accounts.
- Check whether anyone else works in the business without being paid at market.
- Look at repairs and maintenance across several years. A business can look lean for a while by not spending on the assets.
- If the efficiency is real, it is a genuine strength, and it is worth being able to show why.
Cost of sales to turnover
5.5% below the range, worth about $33,300 a year at this turnover
Stock costs less of every sale than it does in the middle of the industry. Genuinely strong buying or pricing produces this. So does revenue that has not all been recorded, or purchases posted somewhere else in the accounts.
What to look at
- Reconcile revenue to lodged BAS and to bank deposits. If the margin is real it will survive that in a morning.
- Check that purchases have not been split across other expense lines, which flatters this ratio and inflates the one above it.
- If the margin is genuine, document why. It is a real advantage and it is worth proving rather than asserting.
- Be aware this is the pattern that most often draws a closer look, from a lender as well as the ATO.
What this does not cover
- Anything about your tax position, which belongs with a registered tax agent
- Labour, rent and motor vehicle ratios, which the ATO publishes separately by industry
- Whether the figures you entered match what was lodged
- Industries the ATO does not benchmark, including general motor mechanics and car washes
- Any prediction of whether the ATO will look at your business
- A view on what the business is worth
Buying a business whose ratios do not sit right?
A gap against the industry is the cheapest lead a buyer ever gets. Due diligence follows it to the source documents and tells you whether it is a good business run differently or a set of accounts that does not describe it. From $2,500.
Want the finance arranged as well?
This site does the analysis and the documents, and does not arrange credit. The broking is done by The Lending Lab, a separate business run by the same person. Send a few details and Nicholas handles it himself.
Common questions
Almost certainly not. The ATO builds each published range to cover about 30% of an industry around the average, which means roughly seven businesses in ten sit outside it while trading perfectly honestly. The range is the middle third, not the normal band. What is worth attention is the direction you sit and how far, because that usually has an explanation, and knowing the explanation is worth having whether you are selling, borrowing or just running the place.
Because the ATO takes it out before working the ratio. Total expenses for benchmark purposes is total expenses less payments to associated persons, which means wages, superannuation and drawings to you and your family. The ATO's own worked example has a tradesman come out at 120% of turnover purely because he left his own salary in. It is the single most common way people get a wrong answer from these benchmarks.
No. Every benchmark ratio is a percentage of turnover excluding GST, and every figure you enter should be GST exclusive as well. Entering GST-inclusive numbers will make every ratio wrong, and it will usually make the business look better on cost of sales and worse on nothing, which is the misleading direction.
Then the ATO does not benchmark it. There are 100 industries in the published set and it is not exhaustive: general motor mechanics, for instance, have no benchmark, and neither do car washes. Picking the closest-looking neighbour is worse than not comparing at all, because the ranges between adjacent industries differ enough to give you a confident wrong answer.
Because cost structures do. A business turning over $200,000 usually has the owner doing most of the work, so wages are low and total expenses look modest. The same business at $800,000 has staff, and the ratio climbs accordingly. The ATO publishes a separate range for each turnover band for exactly that reason, and the band edges are hard: a business on $600,000 and one on $600,001 are compared against different figures.
They are the 2023-24 benchmarks, which are the most recent the ATO publishes, drawn from tax returns for that year. There is an inherent lag of about two years. Wage, rent and energy costs have moved since, so current-year cost ratios will generally sit a little higher than the published ranges suggest.
No, and it is not a review or a finding of any kind. It is a comparison of figures you typed in against published industry ranges. Andorra Advisory Group does not provide taxation advice, and a tax position belongs with a registered tax agent. What we can help with is the commercial question underneath it: what the gap means for what the business is worth and what a lender will make of it.
Benchmark data: ATO: Small business benchmarks, 2023-24 benchmarks, covering 100 industries. General information only. Not taxation advice and not a review of your tax position. Andorra Advisory Group does not provide taxation advice, audit or assurance services; a tax position should be confirmed by a registered tax agent.