ATO benchmarks for chicken shops

The ATO's chicken shop group is made up of businesses selling cooked chicken, with other takeaway food and drinks that customers carry off to eat elsewhere. For these shops the ATO picks cost of sales, taken as a share of turnover, as the key range, the ratio it rates most accurate for predicting what a shop turns over.

A shop joins the group through the main activity it reports. Left out are businesses at the very small and very large ends, those reporting a mix of activities and those trading for under a year when the year began, with statistical outliers removed last. What remains are established shops running a single trade.

Turnover means the shop's food and drink takings, excluding GST. Total expenses gathers all business costs once anything paid to relatives or other associated persons is taken out. Cost of sales is a narrower slice, and the ATO keeps salary and wages out of it.

Raw birds, frozen chips, frying oil, coleslaw ingredients and canned or bottled drinks bought for resale form cost of sales, which in turn counts inside total expenses. Wages for counter and kitchen staff sit outside cost of sales, so they show in total expenses only. Shop rent, gas and power for the rotisseries and fryers, commission taken by delivery apps and the running costs of a delivery car are part of total expenses too.

A supplier bill filed under another heading still counts in total expenses but drops out of cost of sales, so the way purchases are sorted moves the key ratio for chicken shops while leaving the total unchanged.

Each band takes in a share of shops either side of the industry's mean for that turnover range. It is not a floor or a ceiling, and its ends are rounded to whole numbers. The turnover ranges are drawn up for chicken shops on their own.

In both years total expenses rise with every move to a higher turnover range, and the lowest range has the widest band. In 2023-24 cost of sales rises from the lowest range to the middle range, then slips back slightly in the top range, with the band holding the same width throughout. In 2022-23 the top cost of sales range keeps the middle range's ceiling and only its floor slips back.

Against 2022-23, the lowest range is unchanged on both measures. In the middle range cost of sales is the same, while the total expenses band has widened at both ends. In the top range the total expenses band starts lower with the same upper end, and the cost of sales band keeps its floor but tops out lower.

In a chicken shop, the ATO's reasons for a result above the range look like birds and chips binned at closing, chicken dinners taken home for the family but still counted as stock, chicken bought dearer than other shops pay, a full crew on between the lunch and dinner rushes, a thin mark-up on menu prices, counter sales that skip the till, or till cash spent on supplies before the takings are written up.

On the ATO's list, a low result can trace to costs filed under the wrong heading, such as poultry bills posted to general expenses, bills not entered at all, a stronger mark-up, or a tighter kitchen with less waste. Checks on the books come first:

• every invoice from the poultry, produce and drinks suppliers is in the books for the full year
• frozen birds, chips, oil and drinks still in the coolroom and freezers are counted when the year closes
• each day's till total agrees with the cash and card money that reached the bank

Start with a whole financial year's profit and loss. Divide cost of sales by turnover, then total expenses less any associated persons' payments by turnover, and place each result against the band for the shop's turnover range. The ATO's ranges come from full years of trade with newly opened shops, multi-activity businesses and outliers taken out, so a part year, an opening year, a year hit by a big repair bill or a shop that also runs a separate trade can read differently.

The ATO's chicken shop page adds that a shop whose cost of sales is small or nil can compare against the total expenses range instead.