ATO benchmarks for bookshops

This ATO group is shops that sell books, among them fiction and non-fiction, textbooks, and business and reference titles. Newsagencies and stationery suppliers sit outside it. The key range for book retailing is cost of sales to turnover, the ratio the ATO considers the most accurate predictor of a bookseller's turnover, with total expenses used instead by a shop reporting little cost of sales or none.

Shops are placed by their main activity. Those under or over the ATO's turnover limits, those with more than one business activity and those trading for less than a year before the financial year began are left out, as are statistical outliers.

Turnover means sales of books and other goods, excluding GST. Total expenses counts the shop's spending but not payments to associated persons, such as a family member paid to work the till. Salary and wages are removed from cost of sales before that ratio is worked out.

In a bookshop, cost of sales holds the titles bought from publishers, distributors and wholesalers, along with any cards, stationery or gifts stocked to sell. Total expenses takes in those purchases plus shop rent, staff wages, card terminal fees, point-of-sale software, freight, shopfitting repairs, advertising and author events.

Rent gets its own ratio for book retailers, with the ATO listing a rent range among its other benchmarks as a guide only, and rent counts in total expenses, not in cost of sales. Stock bought tends to track sales up and down, which the ATO gives as the reason cost of sales predicts a retailer's sales well.

A range here is the band of bookshops either side of the mean ratio for that turnover range. It is not a target or a cap, its edges are rounded to whole numbers, and the turnover ranges are set for book retailing alone.

Cost of sales takes a larger share as turnover grows: the lower edge climbs at each step, while the upper edge peaks in the middle range, just above the top range's. The band narrows sharply at each step in both years. Between the years each range moved at one edge only: in 2023-24 the lowest range has a lower ceiling, the middle range a lower floor and the top range a higher floor.

Total expenses also rise from the smallest shops to the largest in both years. In 2023-24 that band narrows at each step; in 2022-23 the middle band was the narrowest. Compared with 2022-23, the 2023-24 lowest range starts lower but tops out at the same point, the middle range is wider in both directions, and the top range starts higher with the same upper edge.

A ratio above the band says costs are high for the sales made. For a bookshop that might be damaged or unsaleable stock, books taken home to read but still counted as shop stock, titles bought on less favourable terms than other sellers get, rent or staff hours heavy for the number of books sold, prices cut to compete, or sales missing from the point-of-sale records. Takings spent straight from the cash drawer still count as sales.

Below the range can point to stock purchases posted under another expense heading, purchases left out of the books, a fatter mark-up than other shops, or a shop that loses less stock to damage. Recording checks come first:

• Publisher and distributor invoices for the year are all in the books and tie back to their statements.
• The year-end count covers the storeroom as well as the shop floor.
• Point-of-sale takings agree with card settlements and cash banked.

Take a whole financial year's profit and loss, divide cost of sales and then total expenses by turnover, and set each beside the range for the shop's turnover. Payments to associated persons come out of total expenses and wages out of cost of sales, matching the ATO's method.

A shop in its first year reads differently, since the ATO uses businesses past their first year. A shop open for only part of the year reads differently too, as its figures cover less than a full year. So does a year weighed down by a single big expense, such as fixing storm damage to the shopfront. A shop that also trades as a newsagency or stationery supplier may fall outside this group, since businesses reporting more than one activity are left out of the ATO's figures.