At the Access Group, we provide smart and scalable software for accountants that will help extract information on their financial health or practice performance for accounting practice benchmarks.
Chances are you've heard the term "benchmarking" at some point in the last few years and thought, "what is benchmarking in accounting?"
So, in this article, we'll present our guide to accounting practice benchmarks and explore how you can apply them to your firm to improve team efficiency.
What is benchmarking in accounting?
Benchmarking for accounting practices can be defined as comparing your accounting practice processes, procedures, and key performance indicators to those of other firms or accounting industry benchmarks or standards.
These accounting practice benchmarks, once ascertained, will help firms measure and evaluate their performance in many different areas to identify where they can make improvements to reach established best practices in the accounting industry.
Accounting benchmarking examples
Here are some accounting benchmark examples you can apply to your practice:
- Business profitability: measuring the profitability of your practice will assess your ability to generate earnings.
- Revenue comparison: comparing your revenue to previous periods will help to analyse your accounting practice growth over time.
- Employee expenses: this can help you refine your plan for hiring and staffing your accounting practice.
- Productivity analysis: helping you work out whether you are meeting your accounting practice's productivity by measuring insights to track, manage and support the performance of accountants in your practice.
- Business value: use customer retention, customer loyalty and profitability to measure your accounting practice's future potential, enabling you to plot a strategic plan to bridge the gaps.
The benefits of effective benchmarking in your practice
Benchmarks in accounting offer many benefits, including:
- Performance improvements: By comparing your accounting practice against best-in-class, you will identify performance gaps, enhancing operational efficiency, productivity, financial benchmarking opportunities and accounting business performance.
- Learning from best practices: Benchmarking allows firms to learn from successful accounting practices or industry leaders. Accounting firms that study accounting industry benchmarks can identify innovative approaches, strategies, and accounting processes to improve their operations.
- Identifying new opportunities: Benchmarking helps uncover opportunities for accounting practice growth and improvement, including recent market trends, emerging technologies, or untapped areas where accounting practices gain a competitive edge.
- Increased efficiency and cost savings: By comparing accounting processes, workflows, and resource allocation, benchmarking enables firms to identify inefficiencies and implement process improvements, resulting in better cash flow, streamlined accounting workflows, new ways to use accounting automation and better use of accounting practice resources.
- Enhanced accountant-client relationships: Different types of benchmarking in accounting can shed light on client expectations and industry standards for quality, service, and responsiveness to your firm's clients. Accounting firms can help improve client relationships by aligning their practice with the industry's top performers.
- What can benchmarking achieve?
The primary objectives of accounting practice benchmarks are as follows:
- Performance comparison: Effective benchmarking helps accounting practices assess their performance against industry peers or competitors.
- Process improvements: By benchmarking their accounting practices against other firms, accounting practices can identify areas for process improvement, such as streamlining processes, enhancing efficiency, reducing costs, or improving the accuracy and timeliness of financial reporting.
- Best practice identification: Accounting industry benchmarks involve studying the practices of top performers in the accounting field. Firms can adopt or adapt these practices to enhance their accounting operations.
- Goal setting and targeting: Benchmarking accounting practices helps to set realistic goals and targets for accounting functions. By comparing their performance against accounting industry benchmarks, accounting firms can establish targets for financial metrics, internal controls, compliance, and other relevant areas.
Please read our article: How to grow your accounting practice, for more information on the tools and strategies for accounting business growth.
How to implement benchmarking in your accounting practice
Accounting firm benchmarks typically involve the following steps:
- Identify performance metrics: Determine the key accounting metrics and indicators that will be used to evaluate performance and compare against your accounting firm benchmarks. These could include financial ratios, key performance indicators, or specific process-related measurements.
- Identify peers or accounting industry benchmarks: Select comparable accounting practices or standards against which your firm will be benchmarked: research industry associations, professional networks, or financial data.
- Data collection: Gather relevant information about your accounting practice and competitors to establish effective benchmarking accounting. This may involve the financial analysis of statements, reviewing internal accounting firm documents and conducting surveys or interviews with accounting industry peers.
- Analysis and comparison: Compare your practices and performance metrics to those in your accounting firm benchmarks. Identify gaps, strengths, weaknesses, and opportunities for improvement.
- Action planning: Develop an action plan to address the areas for improvement identified during the accounting practice benchmarking process, including implementing new strategies, adopting best practices, or changing existing procedures.
- Monitoring and continuous improvement: Monitor and evaluate the effectiveness of the implemented changes and track progress against your accounting practice benchmarks. Regularly update and refine to ensure your improvement is ongoing.
Accounting KPIs you may want to consider
A key performance indicator (KPI) is a critical measure in accounting practice benchmarks, as it helps to quantify progress towards targets, strategic goals or core objectives of your accounting practice.
For a KPI to work for effective benchmarking, it must be:
- Simple, easy to measure and defined,
- Communicated effectively across your practice, and
- Both are achievable and relevant in the long term.
Some key accounting KPIs you may want to consider for effective benchmarking in your practice include:
- Project completion rate: giving visibility to how productive your accounting practice staff are at seeing projects through to completion.
- Measuring churn: helping you to know what you need to do to improve the engagement and satisfaction of your accounting practice clients.
- Working capital: determine whether you can pay short-term debts for your accounting practice.
- Cost revenue ratio: giving you a better insight into your cost control and profitability performance.
In our article, the 11 KPIs your accounting practice should be tracking, we will further discuss these KPIs your accounting practice should follow and why, as well as formulas for how these KPI examples are calculated.
Your journey to accounting practice benchmarking
To summarise, accounting practices can use different types of benchmarking for their accounting practice to improve their operational efficiency and productivity and work towards realistic goals and targets that will help their accounting practice to grow.
Benchmarking tools, such as accounting practice management software, are valuable assets for tracking your accounting practice benchmarks.
Through best-in-class practice reporting, you can quickly extract information on your financial health or practice performance and present it visually through intelligent KPI dashboards rather than having to collate and format this data.
Using our intuitive practice management accounting software makes your data simpler to understand, saving you time on the analysis and monitoring of your practice performance.