ATO benchmarks for auto electricians

The ATO's automotive electrical services industry takes in workshops that find faults in, fix and look after the wiring and electrical parts of vehicles. For this trade the key benchmark range the ATO names is cost of sales to turnover, the ratio it treats as the most accurate guide to an auto electrician's turnover. A workshop with little or no cost of sales to report is pointed to total expenses to turnover instead.

Businesses join the group according to the main activity they report. The ATO leaves out workshops too small or too large by turnover, any business listing several activities and those that had not traded for a full year before the year began, then strips out results lying far from the rest.

Turnover is income from the work and parts a workshop sells, excluding GST. Total expenses counts every business cost less anything paid to associated persons, for example relatives who work in the workshop. Cost of sales is a narrower figure, and the ATO takes salary and wages out of it. Its methodology, using retailers as the example, describes cost of sales as a cost that tends to rise and fall with sales.

For an auto electrician, the batteries, alternators, starter motors, wiring, globes and accessories bought in to fit or resell are the goods sold, so they count in cost of sales and, through it, in total expenses. Wages for the auto electricians on the tools, workshop rent, insurance, power, diagnostic software subscriptions and the service van's running costs sit in total expenses only. The ATO's own page for the trade adds separate ratios for labour, rent and vehicle costs.

Each range marks out a band of businesses clustered around the mean for auto electricians in one turnover range. Its edges mark no minimum or maximum, and the ATO publishes them as whole numbers. The turnover ranges themselves come from this industry's own spread of results, so they differ from other trades.

Both figures climb as the turnover ranges step up: bigger workshops spend a larger share of turnover on parts and on costs overall. In both years each figure's narrowest band belongs to the highest turnover range, and the cost of sales band narrows at every step.

Next to 2022-23, the 2023-24 bands sit lower or level. The bottom of every cost of sales band moved down, while its top held in the lowest and highest ranges and eased in the middle one. For total expenses, the middle band dropped at both ends, the lowest band only at its floor and the highest band only at its ceiling.

A cost of sales share above the band says parts are costing a lot against sales. In an auto electrical workshop that can come from paying more for batteries and parts than other workshops pay, a thin mark-up on parts fitted, parts used on the owner's own or family vehicles but still counted as business stock, or cash jobs that never reached the sales records. High rent, or more staff than the job volume needs, lifts total expenses in the same way.

A share below the band can mean parts bills were entered under another heading, such as workshop consumables, so they missed cost of sales, or that some purchases were never recorded. It can equally reflect a stronger mark-up on parts or less waste. Ruling out a recording slip comes first:

• Every parts supplier bill and counter receipt entered, including parts collected from a wholesaler for a single job
• A count of batteries, globes and parts on hand at year end
• Card terminal settlements and cash takings agreed to bank deposits
• Supplier statements compared with the bills already in the books

Using a complete financial year of profit and loss figures, work out cost of sales, with wages left out, over turnover and total expenses, less payments to associated persons, over turnover, and set each against the band for the workshop's own turnover range. Results from a part year or a first year of trading, from a year hit by a big one-off bill such as a major roof repair, or from a business that also runs another activity can read differently, since the ATO leaves out first-year and multi-activity businesses and trims extreme results. A workshop doing mostly diagnostic and labour-only work fits few parts, which leaves little cost of sales; that is the case where the ATO points to total expenses instead.