ATO benchmarks for coffee shops

The ATO's coffee shop group takes in businesses that sell coffee, tea and other drinks along with food. Coffee carts, vans and other mobile sellers fall outside it. Cost of sales to turnover is the ratio the ATO treats as the key range here, and it regards that ratio as the most accurate for predicting turnover in this trade.

Shops are grouped by their main reported activity. Businesses under or over the ATO's turnover thresholds, businesses listing more than a single activity and businesses that had traded for under a year when the financial year started are excluded, and outliers are removed before the ranges are calculated, so the bands reflect established cafés with no second trade.

Turnover is takings from drinks and food, excluding GST. Total expenses is the year's business costs once amounts paid to associated persons (a family member on the roster, for instance) are removed. Cost of sales is a tighter measure that leaves salary and wages out.

Beans, dairy and plant milks, tea, syrups, the cakes and sandwiches bought in ready to sell, and bottled drinks all sit in cost of sales, which itself counts within total expenses. Barista and kitchen wages fall outside cost of sales and so appear in total expenses alone, and rent, power, machine servicing and card fees count there too. A shop that bakes in its own kitchen buys ingredients instead of finished cakes, and the baker's time lands in total expenses rather than cost of sales.

In every turnover range the total expenses band sits well clear of the cost of sales band, because wages, rent and running costs belong only to the larger figure.

Every band shows where a share of coffee shops cluster around the mean figure for the turnover range in question. It is not a minimum or a maximum, the ATO publishes its ends as whole numbers, and the turnover ranges are fixed for coffee shops specifically.

The total expenses share rises with every move up in turnover, and the band narrows as it goes. In 2023-24 the cost of sales band's upper end falls at each step while its lower end edges up in the middle range and drops in the top range; the band narrows throughout, and the top range sits lowest. In 2022-23 the cost of sales band follows a similar line, its upper end falling at each step while its lower end holds in the middle range and drops in the top, so the band narrows into the middle range and then keeps its width.

Compared with 2022-23, the middle range is identical on both measures. In the lowest range the total expenses band has a lower floor and an unchanged top, and the cost of sales band sits lower at both ends. In the top range total expenses are unchanged, and the cost of sales band has the same lower end and a lower upper end.

Read for a coffee shop, the ATO's reasons for sitting above a range include milk poured away and unsold food binned, coffee and food consumed by the owner's household but kept in the stock figures, beans or milk bought dearer than other cafés pay, baristas rostered through quiet afternoons, a menu priced with a slim mark-up, sales not keyed into the till, or cash taken from the till for supplies without the takings recorded.

On the low side, the ATO's list covers costs sitting under the wrong heading, for instance bean and dairy bills parked in general expenses, costs not recorded, a fuller mark-up, or a leaner operation with less waste. Recording causes are the first thing to rule out:

• bills from the roaster, dairy, bakery and other food suppliers are all entered for the year
• beans, milk and food still on hand at the close of the year are counted
• cash pulled from the till for milk runs or small purchases still shows in takings

Using the profit and loss for a whole financial year, divide cost of sales by turnover, and total expenses net of associated persons' payments by turnover, then compare each with the band for the shop's turnover range. The ATO builds its ranges from full years and takes out first-year shops, multi-activity businesses and outliers, so a part-year result, an opening year, a year carrying a major machine repair, or a café that also runs a catering arm reads differently.

Where a coffee shop reports a small cost of sales figure or none, the ATO's industry page directs it to the total expenses range.