Jim Crisafulli, a Fiducial franchisee in Woonsocket, RI, believes most small business owners don't know how their enterprise compares with their competitors.

"They can survive without knowing but it's certainly a good business practice to be able to make that financial analysis and use it to benefit your company," said Crisafulli. "I certainly would want to know, because some things are controllable. Maybe the cost of distribution is higher in certain areas of the country. There are variables that can give you some good reasons why."

Like a number of Fiducial advisors, Crisafulli utilizes ProfitCents, a Web-based software program that provides a written explanation of financial statements to business clients. The PC reports use ratio analysis, industry comparisons, and trend analysis to get a reading of the financial health of the client's business in plain language. Fiducial advisors then interpret the reports and identify key areas that the business owner needs to address to help get the business back on track.

"It's a great tool that enables us to do the job for our clients," he said. "It's one more resource that can help them to manage their business to the best of their capability. Sometimes they could do that with market research or they would have to pay for it, which could get expensive."

Crisafulli says those small businesses that don't see the value in taking advantage of ways to benchmark their business "could be leaving profits on the table by not looking at ways to improve their profit by using those benchmarks."

One of his clients who can attest to the merits of ProfitCents owns a multi-purpose health center that offers racquetball along with exercise wellness at its facility. When Crisafulli compared their performance against other companies, he found that the center was not performing as well as it should have in the industry when it came to certain financial ratios.

"It was a good tool to say 'how come?'" he said. Thanks to the benchmarking analysis, the health center is now in the pink.
 
Impacting the bottom line

William (Bill) Woodcock is no stranger to ProfitCents. He has been using the specialized software in his Fiducial business in Renton, WA, for the last five years. And it's made a difference for a number of his clients.

"A lot of business owners really appreciate that," said Woodcock who noted that some of the businesses have taken to heart the benchmark that has led to real improvements in their operations.

Woodcock cited the example of a group of four stores that sells shoes and orthotics who asked for a benchmark on their chain. The results came as a surprise to the store owners who noticed that they weren't doing as well as they should.

"It was kind of an awakening for them," Woodcock said. "They thought they were doing pretty well, but in fact they weren't."

With the benchmarking generated by ProfitCents, the store owners were able to make some adjustments in their operation that had an impact on their bottom line.

"They now exceed a typical shoe store's profit," he said.

According to Woodcock, while most entrepreneurs know what benchmarking is, they still think it's an accounting term. When he explains how benchmarking can actually help improve their business, the owners usually come around.

"When they do understand, they act on it," he said. "That would be in 90 percent of the cases."

Of course, there are some businesses that are tougher to assist with a benchmarking report. Woodcock gave the example of a client who repairs symphony brass and woodwind instruments, with the company considered the best at what they do in the United States. He said their goal is to be the best in the world, and though they have two European competitors, it's just impossible to get the type of data needed for such an analysis.

"It's such a specialty," he said. "There isn't anybody out there with this type of data. In a more typical business like a restaurant it's much easier."

Gaining an edge

For most small business owners, however, the tangible results generated by a benchmarking report present good, solid information they can use to make certain changes in the way they do things.

"They can see on average what their competitors are doing in a number of areas such as utility expenses, payroll, or whatever expense item they might want," said Mark Drewes, Fiducial's manager of real estate services. "It certainly gives them a very clear picture of their performance versus their peers. Based on that, they hope to improve in areas they are trailing their peers."

At the same time, benchmarks will help identify a company's strategy.

"If their payroll is operating at 40 percent of revenue and the competition is operating at 50 percent then they can continue to be focused on that," he said. "I'm a big believer in benchmarks -- that kind of data is invaluable."

Yet when it comes to measuring how one company compares with another, Drewes said most small business owners have no idea what their peers are doing.

"Without that data you're shooting at a target that you can't see," he said. "Why is the guy down the street beating your socks off? It could be that their marketing is better. Why is that person more profitable? There's really no other way to get that data other than benchmarking."

Every business wants to separate itself from the competition and benchmarking is one avenue that can help them to accomplish that.

"It's a competitive market and they need to do everything they can to gain an edge," Drewes said.

STEPHEN PAREZO is the Media Manager for Fiducial. For more information on how Fiducial professionals have utilized ProfitCents, visit http://www.fiducial.com/press_center/news/122704.asp