ATO benchmarks for bottle shops

The ATO's group here is businesses selling packaged beer, wine, spirits and premixed drinks. Pubs, taverns, bars and accommodation hotels are not part of it. Cost of sales against turnover is the key range for this industry, the ratio the ATO regards as predicting turnover most accurately in liquor retail. A shop with little or nothing in cost of sales is pointed to total expenses instead.

Shops join the group by their main activity. The ATO drops businesses outside its turnover limits, those with a mix of activities and those in their first year, then takes out results far from the rest.

Turnover means takings from the drinks and other goods a shop sells, excluding GST. Every running cost goes into total expenses apart from amounts paid to associated persons, such as relatives.

Cost of sales is where the drinks themselves sit: what the shop paid wholesalers, breweries, wineries and distillers for the cartons, cases and bottles it resells. The ATO strips salary and wages out of this figure even when a business reports them inside it, so counter staff are not part of cost of sales.

Total expenses holds everything in cost of sales plus the rest of the shop's costs: wages, rent, power for fridges and cool rooms, card fees, delivery van costs, liquor licence fees and insurance. A shop with high rent or a large roster can therefore sit high on total expenses while its cost of sales looks ordinary.

A band marks out a slice of shops around the industry's mean ratio in every turnover range. It sets no minimum and no maximum, its ends are rounded to whole numbers, and the turnover ranges come from the spread of this industry's own results.

Cost of sales climbs from the smallest turnover range to the largest in both years, so stock takes a bigger share of each sale in bigger shops, and the band narrows at each step up. Total expenses climbs sharply out of the lowest turnover range into the middle one and tightens as it goes. From the middle range to the top it edges up only at the lower end, and in both years those bands share the same upper end.

Year to year, every change is slight and touches a single end of a band. For cost of sales in 2023-24, the lowest band's lower end rose, the middle band's lower end fell and the top band's upper end rose. For total expenses, the lowest band's upper end fell, the middle band did not change and the top band's lower end rose.

Several of the ATO's reasons for a ratio above the range fit a bottle shop closely: more wastage from broken or out-of-date stock, drinks taken for personal use but left in the business's stock figures, suppliers charging more than competitors pay, or a slimmer shelf mark-up. Sales missing from the books also push cost of sales up against turnover, which is why the ATO points to till and point-of-sale reports, and to cash taken from the till for expenses without being rung up as sales.

Below the range, stock purchases may be sitting under another expense heading, some supplier invoices may be missing, or the shop may simply price its shelves higher or lose less stock to waste.

Recording causes come first: every wholesaler and producer invoice entered, the stock on the shelves and in storage counted at year end, and the till's daily totals agreeing with what reached the bank.

Over a full financial year, take cost of sales from the profit and loss, divide it by turnover excluding GST and set the result against the band for the shop's turnover range. Repeat with total expenses once payments to associated persons are taken off. A shop recording little or no cost of sales would lean on the total expenses comparison, as the ATO directs.

A shop's first year, a part year, a year hit by a heavy one-off cost, or a business that also runs a bar or cafe will not compare cleanly with a group that keeps out new businesses, mixed activities and extreme results. And because the year-end count of stock feeds straight into cost of sales, a rough count moves this ratio.