Benchmarking may identify if small businesses are spending too much or setting their prices too low.

The ATO has released new small business benchmarks, which are based on data collected from more than 1.3 million small businesses.

Small businesses can use these benchmarks to see how they stack up against comparable businesses in their industry, according to ATO assistant commissioner Matthew Bambrick.

“We know a lot of small businesses, advisors and industry associations use the benchmarks to gauge competitiveness, whether or not costs might be too high or profit margins too low,” he said.

“Sometimes when a small business finds themselves outside the benchmarks for their industry, it may be because they have more waste than their competitors or they’re spending more on materials in comparison.

“Using the benchmarks as a guide, not only can they identify where they are slipping behind, but also how they can improve and build their business.”

Mr Bambrick gave the example of one small business that discovered that its expense-to-turnover ratio was higher than other businesses with a similar turnover.

The small business used this information to adjust some of its expenses and some of its prices, resulting in improved profitability.

However, Mr Bambrick also gave a warning – the ATO uses benchmarks to identify small businesses that might be underreporting their income.

“We use tools like benchmarks and data matching to protect honest businesses from competitors who are trying to get ahead by avoiding their tax obligations,” he said.