Industry Averages for your Business
Every entrepreneur would like to know how their business compares with others in the same industry. This is why NAICS codes were developed. NAICS (North America Industry Standard Classification System) classifies each business and assigns a code. For example, the NAICS code number 451120 represents “Hobby, Toy and Game Stores” and the NAICS code number 443144 represents “Computer and Software Stores”. By doing this, information can, and is, gathered from these companies and compiled for your consumption so you can compare the industry averages to your business.
One of the most common statistical information is called Vertical Analysis. This presents your expense information as a percentage of your sales. For example, your Cost of Goods Sold may be 60% of your Sales, your Rent may be 10% of your Sales, your Wages is 150%, etc.
To access this information, you must follow 2 steps:
Step 1:
Step 2:
Notice that every column for the row “Total revenue” shows 100%. This is the base to which all expenses are compared.
Assuming you receive Financial Statements on a timely basis (monthly), you can now compare your company’s performance to that of the industry as a whole.
Tags: compare