The first question that you might ask is “Why should I be benchmarking my business?” After all, your business is unique and, when you come to do it, meaningful benchmarking is not that easy to do.  

Well, the answer is because a buyer certainly will.  

Put yourself in the shoes of a potential buyer, or better still, think about how you go about making a significant purchase. A good example is buying a car. You’ll want to line up the technical features, the MPG, the 0-60 times, the BHP, carefully assess the extras, in-car entertainment, the gadgets and gizmos, against the other options in the market at your price point. You will also likely want to read some reviews and get some third-party validation that the choice you are making is the right one.

The process is no different for a buyer considering the purchase of your business. They will want to make sure that your financial ratios and KPIs are in line with the market or, better still, slightly enhanced. They will also want to understand what the market thinks of your products, services, and pricing in comparison to competitors. Afterall, they are making a significant purchase themselves and they will want the same sort of reassurance you would seek when buying a car. Buyers are human beings and make purchasing decisions in the same way as you or I.

Furthermore, being able to demonstrate to a buyer that you are ahead of the game and have a full awareness of your relative performance against your peers always delivers confidence. You really don’t want to be waiting until due diligence to find out whether your business compares well (or does not). A buyer wants to know that you understand what good performance means, and that you are actively striving towards it.

So, when building your business, and especially when you have any form of exit or fundraising in mind, a benchmarking exercise will pay dividends.  

How do you go about it? Doing the exercise properly and meaningfully takes some skill and experience. Getting the support of an advisor practiced in doing this for buyers could be one of the best investments that you make.

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