Cabinet makers – ATO benchmarks

Posted by Northadvisory on August 26, 2016

Continuing our review of ATO benchmarks, we review the performance benchmark rates for businesses in the cabinet makers industry. Businesses in this industry typically manufacture and install cabinets for kitchens, bathrooms, wardrobes and shop fittings.

What are the benchmarks for cabinet makers?

The key benchmark ratio for this industry is total expenses to turnover. This ratio is likely to be the most accurate predictor of business turnover.

Key benchmark ratio	Annual turnover range
	$100,000 – $300,000	$300,000 – $900,000	More than $900,000
Income tax return
Cost of sales/turnover	35% – 46%	40% – 49%	42% – 52%
Average cost of sales	41%	44%	47%
Total expenses/turnover	64% – 77%	79% – 88%	86% – 93%
Average total expenses	71%	83%	89%
Activity statement
Non-capital purchases/total sales	52% – 66%	58% – 69%	58% – 68%

The following benchmarks can be used as a guide for businesses to review their performance and business practices against other similar businesses.

Benchmark ratio	Annual turnover range
Income tax return	$100,000 – $300,000	$300,000 – $900,000	More than $900,000
Labour/turnover	17% – 27%	17% – 27%	23% – 31%
Rent/turnover	6% – 9%	4% – 7%	3% – 5%
Motor vehicle expenses/turnover	4% – 7%	2% – 3%	1% – 2%

How do I determine whether I am within the benchmark range?

We provide a calculator tool which calculates the following key financial ratios using income tax return data:

• cost of sales/turnover
• total expenses/turnover
• labour cost/turnover
• rent/turnover
• motor vehicle expenses/turnover
and the following ratio based on data included in the activity statement of a business:
• non-capital purchases/total sales.

ATO Benchmark Calculator – Cabinet makers

What it means to be outside the benchmarks

In this case, if you believe your tax affairs are correct you must ensure that you have good records to support your tax return.

If a business does not have evidence to support their return, the ATO may use the benchmarks to determine that the business has been under-reporting income and impose additional tax and penalties.

Reporting above a benchmark range

If your business is reporting above the benchmarks, it means your expenses are high relative to income. This may indicate that:

• you have high wastage
• your competitors may be able to source inputs at lower cost than you
• your volume of sales is too low (for rent and possibly labour)
• your mark-up is lower than your competitors
• you have not recorded all your sales, or
• your internal cash controls may need to be examined.

Reporting below a benchmark range

If your business is reporting below the benchmarks, it means your expenses are low relative to sales. This may indicate that:

• your expenses may be recorded under the wrong label
• some of your expenses may have not been recorded
• your mark-up is higher than your competitors, or
• you have less wastage.

If you have any questions or other enquires, please contact:

Martin van der Saag
Director
T: 02 9984 7774
E: martinv@northadvisory.com.au

Norman Ruan
Accountant
T: 02 9984 7774
E: normanr@northadvisory.com.au