Every business needs financial resources, human resources, and physical resources – utilities, raw materials, and equipment. These resources are limited, and quality resources are scarce. The efforts you took to accumulate these resources could be wasted if they are not used to their optimum potential. Imagine having the best marketing minds on your payroll, yet they’re underutilized due to a lack of good technology or process delays. Or having thousands of dollars of client payments stuck just because you do not accept credit card payments. These inefficiencies might seem small, but your business is paying the cost, and when you analyze the numbers, you might be shocked to see how much money (or profitability) you are losing from these leaks.  

How Business Owners Can Improve Business Efficiency and Profitability

You don’t always need big pockets to improve profitability. Sometimes, all it takes is a few tweaks in the way you are doing business to improve profitability.  

Streamlining Processes to Improve Efficiency

• User experience: So you don’t have the budget for a new marketing campaign, and your sales are slowing. Consider focusing on user experience. Give customers a platform to share their experience. It can be a social media page or an email asking for reviews on their experience of doing business with you.  
• Customer Feedback: Authentic customer feedback is a gold mine of insights. They can identify areas of concern, provide suggestions to enhance your offerings, and highlight the strengths that make you their preferred choice. Even competitor reviews can give you similar insights into what customers really want.  
• Efficient Communication: When multiple teams and departments are involved and interdependent, poor communication and a lack of backup can lead to inefficiencies. Missing deadlines, poor quality, and rework are profit parasites. There are several software applications available that make it easy to chat and share documents within and between teams. Digital approvals, work management software, reduced steps, and micromanagement can reduce waste with efficient and effective communication.
• Employee Productivity: Every organization has a workforce that is both efficient and less efficient. Reduced efficiency stems from a lack of work flexibility, knowledge upgradation, or motivation. Investing in educating teams on new software, processes, or projects can help. If motivation is lacking, consider restructuring the incentive model to include a performance-based bonus. You can also offer flexible working hours or a hybrid model to some employees if time restraints are affecting their productivity.  

Increasing Cost Efficiency by Optimizing Expenses

Operating expenses have a direct impact on profits. If you can sell the same units for lower expenses, you can improve operating profitability. 

• Automate Processes Wherever Possible: Technology enables us to accomplish more in less time. Digital payments can streamline the process of sending physical checks, depositing them in banks, and recording the transaction in your books of accounts. There is software to record business expenses and attach receipts, store documents, and process payroll, reducing the need for full-time bookkeeping staff. Prioritizing online meetings over physical meetings can save travel costs and work time that goes into preparing for snacks, stationery, and matching schedules.  
• Outsourcing: Tasks that don’t require a full-time employee can be outsourced, particularly those that require professional expertise, such as accounting, taxation, and chief financial officer services. Hiring a professional is expensive, but using their services as a client is cost-effective.  

Increasing Sales to Improve Profitability

Efficiency is not just about costs but also about increasing sales without increasing expenses. You can increase sales in many ways:       

• Increase Average Revenue Per Customer: Your existing customers are your assets, and you must retain them and prevent them from being lured by competitors. You can offer loyalty programs that allow customers to receive special birthday discounts, earn points on additional purchases, and redeem them on select items. You can track and analyze customers’ spending habits to send them discounts, offers, upgrades, or cross-sell relevant products.
• Sell more products: You can increase sales by bundling related products in a package at a special price.    
• Increase prices: Increasing prices is not easy, as it carries a risk of losing customers. However, if you can add value to that higher price or convince customers of the reason behind the increase, it could be effective. Suppose you want to increase the price of your cupcakes, you can sell them in three sizes at different prices. A slight design tweak, like Halloween special cupcakes or themed cakes, can command a premium price while your cost remains the same.

Strengthening Business Finances

Efficiency also means how well the business is using its cash and financial assets, such as investments, loans, and credit lines.  

• Cash Flow: Although most businesses may have assets, they often struggle to maintain liquidity due to cash being tied up in accounts receivable or high inventory. Regular monitoring of cash flows, sending timely invoices, and a regular dialogue with clients can ensure that cash flows flow smoothly. If clients are having trouble paying a large sum, you can offer to break down the payment into smaller amounts and charge interest on it. You can also provide a discount for early payments before the due date. These discounts can save you interest costs that you would have otherwise paid on the revolving credit facility or loan against an invoice.      
• Working Capital: Having higher working capital to scale operations during peak seasons or sudden demand can help you cash in on opportunities. It gives you funds to hire more gig workers, produce more goods, or cater to larger order volumes. 
• Maintaining Reserves and Provisions for Risks and Contingencies: No business is without risk, and risk comes from not being aware or ready for contingencies. A snowstorm, fire, a sales downturn, supply shortage, or multiple factors could alter your business plans. Having emergency funds can help you stay afloat until things normalize or give you time to arrange for additional funds. You can also put in place an approved line of credit and a business credit card for emergency access to funds. Maintaining a high business credit score can help you get funds at the best possible rates.  

While these are some good habits to perform business efficiently, you may need professional help if you are struggling to stay profitable.

Contact Ford Keast LLP in London to Help You Improve Business Profitability  

A skilled business consultant can review your business operations, study financial statements, identify areas of inefficiency, and improve efficiency through tax savings, automation, cost-cutting, or debt restructuring. At Ford Keast LLP, our accountants and business consultants can provide services such as analyzing financial statements and setting up business processes. To learn more about how Ford Keast LLP can provide you with the best accounting and business consulting expertise, contact us online or call us at 519-679-9330.