Benchmarking: Are you winning or losing in business?

Michael A. Bohinc, CPAOwner, Keeping Score, Inc.

About the PresenterAbout the Presenter

Michael Bohinc is a CPA in Cleveland, Ohio and theowner of Keeping Score, Inc., an accounting and businessadvisory services firm that Michael started to help smallbusiness owners improve their profitability and business

ti H i i t b f b th th PHCCoperations. He is an associate member of both the PHCCof Ohio and ACCA of Ohio. He is also a Consult & CoachPartner for the Service Roundtable.

Michael has served as the Chief Financial Officer ofNorhio Plumbing, Inc., his family’s plumbing company inAurora, Ohio for over 22 years. Michael has helpedcreate, develop and implement many current business andmarketing programs being utilized by Norhio Plumbing andother businesses Michael was also the majority owner ofother businesses. Michael was also the majority owner ofan HVAC-service company for 6 years until he sold hisstake in the company in 2000 to focus on his otherbusiness interests.

Today’s Game PlanWhat is benchmarking?

Benchmarking vs. benchmarks

Why is it important?Why is it important?

Types of benchmarkingProcessPerformanceFinancialStrategic

The benchmarking cycleg y7 steps in the process

What can we benchmark

Financial Benchmarking in the PHC IndustryHow do I compareIndustry data resources

Q /Questions/Wrap Up

There are a number of definitions for the term “Benchmarking ”for the term Benchmarking.

- originally used in land surveying…a reference point in determining one’s current position or altitude i hi lin topographical surveys

- early 1980s – Xerox case study; compare your performance to the performance of others;your performance to the performance of others; (how do you stack up?)

- then evolved into “best practices”then evolved into best practices benchmarking; an ongoing process; “how” work gets done; no need to “reinvent the wheel”;

- benchmarking is NOT just “numbers crunching” or just copying something another company is doing wellcompany is doing well

Benchmarking is a process.What to measure

How to measure?

Implement & Monitor R lt

g p

Who to measure against?

Develop Action Plan(s)

Results

Benchmarks are measurements

Collect Measurement

s (Data)

Analyze Data Measured

(statistics, ratios, data) used to determine performance in a specific area.

Quite possible the ultimate book of benchmarks…

……with one categorical exception…ironically, business.

Next:  Why?

Why Benchmarking?y g- It helps you find out where you’re at and can help you plan where you are goingcan help you plan where you are going.

- It shows you how you’re doing….not only internally but externally as wellinternally but externally as well.

-“If it’s not measured, it’s not managed.”

- Benchmarking accelerates improvement/change in performance (E l G lf A lf i(Example: Golf – Any golfers in attendance?)

Next: Types

Types of Benchmarking (internal & external)

- Process (i.e. customer service, billing, shipping/receiving, etc.)

- Performance (comparing products & services)

- Financial (F/S analysis, employee compensation, marketing, inventory, etc.)

- Strategic (best of the best – winning strategies no matter the industry classification; comparing structuresmatter the industry classification; comparing structures, practices, cultures, pricing, products, services, etc.)

Next: The Process Cycle

The Benchmarking Cycle

What to measure

How to measure?

Implement & Monitor Results

Who to measure against?

Develop Action Plan(s)

Collect MeasurementsAnalyze Data  Measurements 

(Data)Measured

STEP 1: What process/function should I measure?

- Example: Customer satisfaction

STEP 2: How should I measure it? (KPIs)

E l S t ft i i l t i-Example: Survey customers after service is complete using grading or numerical scale to assess satisfaction.

STEP 3: Who should I measure against?- Example:

- Internal: prior periods, budgets/goals;

- External: local & national competitors within the PHC industry; companies OUTSIDE the PHC industry – i.e. Disney, Ritz Carlton, NordstromDisney, Ritz Carlton, Nordstrom

STEP 4: Collect & review the data

- Example: Customer satisfaction surveys, response cards, etc.

STEP 5: Analyze the data measured

- Example: Compare customer satisfaction results with internal & external data sources

STEP 6: Determine action plan/improvements to be made

- Example: Increase % of customers satisfied by 5% within the next 6Example: Increase % of customers satisfied by 5% within the next 6 months.

STEP 7: Implement action plan/improvements & monitorSTEP 7: Implement action plan/improvements & monitor results

- Example: Call previous day’s appointments and thank them for their p p y ppbusiness; immediately address any concerns they may have;

Next: Outside the box

Square Watermelon

Next: What can we benchmark

What can we Benchmark? Marketing Source TrackingInventory “shrinkage” Avg. Sale 

# of jobs performed # of “walks”

Benchmark Items – SAMPLING of Items:

gAvg. # of tasks (FR service)Avg. time to perform each task/jobAvg. Direct Labor Costs A E l B fit

# of  walks  # of new clients# / % Callbacks % of appointments lateA # f i l Avg. Employee Benefits 

Lost Time Accidents  Avg. Lost Time per Accident 

Avg. # of minutes lateService/Maintenance Agreements sold Add‐ons Sold (i.e. Bio‐Clean) 

Next: Financial Benchmarking/KPIs

Financial Benchmarking (also known as key performance indicators or KPIs)performance indicators or KPIs)

SAMPLE - PARTIAL List of Benchmarks:Financial Ratios:

Gross Profit %Net Profit %Net Profit %Return on Equity %Quick RatioInventory TurnoverA/R TurnoverA/P Turnover

Productivity Ratios:Sales (revenue) per employeeTasks (jobs) per employeeBillable %Billable %Hours sold per employeeConversion Rate

Marketing Benchmarks:Marketing - % of total salesC t llCost per callCost per new customer

Customer Satisfaction Benchmarks:Customer Satisfaction % or rating# of customer complaintsCost per customer complaint

etc…….

Financial Benchmarks in the Plumbing-Heating-Cooling Industry – USA Private Companies $1 -10 Million in Salesy p

Income StatementRecent (352) 2009 (427) 2008 (683) All Yrs (5114)

Sales (Income) 100 00% 100 00% 100 00% 100 00%100.00% 100.00% 100.00% 100.00%

Cost of Sales (COGS) 68.66% 68.49% 66.15% 67.10%

Gross Profit 31.34% 31.51% 33.85% 32.90%

Depreciation 1.48% 1.41% 1.58% 1.57%

Overhead Expenses 24.23% 24.46% 24.37% 24.53%

Other Operating IncomeOther Operating Income 0.07% 0.08% 0.09% 0.05%

Other Operating Expenses 3.12% 3.15% 4.59% 3.18%

Operating Profit 2.58% 2.56% 3.39% 3.67%

Interest Expense 0.63% 0.63% 0.63% 0.62%Other Income 0.42% 0.40% 0.29% 0.31%

Other Expenses 0.26% 0.24% 0.25% 0.20%Net Profit before Taxes 2.47% 2.44% 3.15% 3.71%

© 2010 Keeping Score, Inc. & Profit Cents

Net Profit before Taxes 2.47% 2.44% 3.15% 3.71%

Financial Benchmarks in the Plumbing-Heating-Cooling Industry – USA Private Companies $1 -10 Million in Sales

Balance Sheet Recent (352) 2009 (427) 2008 (683) All Yrs (5114)

Cash (Bank Funds) 14.13% 14.09% 13.20% 13.28%Accounts Receivable 36.92% 37.35% 37.45% 37.38%Inventory 7.53% 8.14% 8.11% 7.51%Other Current Assets 7.39% 7.29% 6.67% 6.73%Total Current Assets 73.94% 74.02% 73.32% 71.87%Gross Fixed Assets 72.68% 73.23% 86.62% 60.03%Accumulated Depreciation 51.09% 51.59% 64.07% 35.12%

Net Fixed Assets 21.60% 21.64% 22.56% 24.91%Other Assets 4.46% 4.34% 4.13% 3.21%T t l A t 100 00% 100 00% 100 00% 100 00%Total Assets 100.00% 100.00% 100.00% 100.00%

Accounts Payable 23.28% 23.52% 21.78% 21.30%Current Portion of L. Term Debt 6.54% 6.04% 6.52% 4.83%Other Current Liabilities 16 42% 17 71% 18 71% 19 23%Other Current Liabilities 16.42% 17.71% 18.71% 19.23%Total Current Liabilities 50.71% 51.16% 49.40% 46.84%Total Long Term Liabilities 22.16% 21.71% 23.31% 20.21%Total Liabilities 72.87% 72.88% 72.71% 67.05%Ending Retained Earnings 24 77% 25 29% 22 03% 20 10%

© 2010 Keeping Score, Inc. & Profit Cents

Ending Retained Earnings 24.77% 25.29% 22.03% 20.10%Total Equity 27.13% 27.12% 27.29% 32.95%Total Liabilities & Equity 100.00% 100.00% 100.00% 100.00%

Financial Benchmarks in the Plumbing-Heating-Cooling Industry – USA Private Companies $1 -10 Million in Salesy p

USA Private Companies: $1-10 Million sales

Financial Metric Recent (352) 2009 (427) 2008 (683) All Yrs (5114)

Quick Ratio 1.83 1.79 1.73 1.75

Gross Profit Margin 31.34% 31.51% 33.85% 32.90%

Net Profit Margin 2.40% 2.55% 3.51% 4.28%

Debt-to-Equity Ratio 2 01 2 16 2 15 2 19Debt to Equity Ratio 2.01 2.16 2.15 2.19

Return on Equity 10.55% 10.96% 14.73% 16.76%

Return on Assets 4.79% 4.69% 6.93% 8.26%

Growth Metric Recent (167) 2009 (201) 2008 (308) All Yrs (2110)Sales Growth

-11.20% -8.73% 4.08% 6.80%

© 2010 Keeping Score, Inc. & Profit Cents

Profit Growth -23.13% -20.44% 2.12% 4.27%

Sources of benchmarking information:

Free sources: US Dept. of Labor, US Census Bureau, IRS Corporate Sourcebook and annual reports of public companies;

Pay sources: Dun & Bradstreet, RiskPay sources: Dun & Bradstreet, Risk Management Association (RMA – the one banks & insurance companies use), www.morningstar.com for public companies i f ti S i d t i tiinformation. Some industry associations have “best practices” groups that provide benchmarking data for their participants.

Next: Review/Wrap‐up

Today’s Game PlanWhat is benchmarking?What is benchmarking?

Benchmarking vs. benchmarks

Why is it important?

Types of benchmarkingProcessPerformanceFinancialStrategic

The benchmarking cycle7 steps in the processp p

What can we benchmark

Financial Benchmarking in the PHC Industryg yHow do I compareIndustry data resources

Questions/Wrap Upp p

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Michael A. Bohinc, CPAO ner Keeping Score IncOwner, Keeping Score, Inc.

(440) 708-2583mbohinc@keepingscorecpa.com@ p g p

John Zink,V.P. Education & Programs, Foundationzink@naphcc.org