01 Sep 12 ways to make your business more financially efficient
Ensuring your business is financially efficient is more than about cutting costs. Extracting maximum performance with minimum waste requires regular reviews of processes, technologies, cash flow, and value creation. Here we take you through twelve ways that you can turn your SME into a financially efficient money-making machine.
1. Have a clear picture of your situation
Before you start looking where to make your business more financially efficient, be sure to have a clear picture of:
Your current financial situation
Where your business wants to be
What your priorities should be to get there
Make sure you track, understand and review all of your key performance indicators on a monthly basis in order to understand the financial efficiency of your business. Ensure you have the means to measure these indicators against your goals. Harness the power of data to build the clearest possible picture of your business. Use this data to build your strategic plans for the year ahead, as well as assess where the risks and inefficiencies that may hold you back are concentrated.
2. Always ask “why?”
If your business has certain processes, suppliers, procedures, costs, customers, and other ways of doing business that have ‘always been this way’, then now is the time to put them under the microscope. Often these can be down to simple convenience. Review, remove, or replace if necessary.
This can also be applied to customers. It may seem counterintuitive, but if you’re spending a lot of time chasing payments and courting business from customers that aren’t reliable, or don’t spend enough, then perhaps it might be time to let them go. Or perhaps raising your prices or altering your terms to a point where they either become financially viable, or cut loose. The time and effort you can then spend on winning and nurturing more worthwhile clients should offset any short term losses.
3. Collaborate and communicate
Information that has to be discovered more than once is wasteful. Encourage employees to share information, collaborate on tasks and communicate more. For example use free document-sharing applications such as Dropbox or Google Docs, where your staff can work on a shared document that can be seen by everyone.
Encourage a culture of feedback and open discussion. This will ensure any areas that require improvement can be flagged up as clearly and as early as possible, ensuring that there is no unnecessary wastage going on in the background.
“The crux of inefficiencies of work come down to lack of clarity,” says Justin Rosenstein, co-founder of collaborative software company Asana. Make sure everybody knows what they’re doing, when they’re doing it, and why. This means no duplication of effort, and ultimate responsibility when tasks are not completed.
4. Standardise and automate
Standardise everything from order forms to emails you send out to clients or customers. Any frequent task that only needs minimal individualisation is a good candidate for standardisation. Create a customer journey map and include all interactions your company makes with its customers. Look at your wider communication processes, both internal and external. Create templates for repeat tasks and be sure they serve to strengthen your brand identity.
Standardising and automating these often simple yet unnecessary activities from your organisation can have a significant impact. Bottlenecks and duplication of effort can eat into your productivity, and therefore the value you’re getting out of your employees.
5. Keep up to date technology
The most basic factor of increased productivity and efficiency is speed. Equipping your staff with the most efficiently run software and hardware should be high on your list. Invest in a good CRM system. The focus that this can bring to sales and marketing teams means that more effort is expended on those prospects that have the highest propensity to purchase. This will reduce wasted time and money.
Consider moving some of your business administration into the cloud. Cloud-based accounting packages can enable easier measurement of key figures. You will save space on server storage, and it will reduce the risk of system failure and information loss. And allowing your employees to securely access important documentation from anywhere will further enhance productivity.
It’s about removing as many physical barriers as you can. Make sure your staff have the tools they need to be able to work remotely and while on the move. Technology systems that enable them to have remote access to company internal systems and databases will allow your field staff to be better equipped. This will further improve productivity and efficiency.
6. Master your cash conversion cycle
Turnover is vanity, profit is sanity, and cash flow is reality. Your cash conversion cycle – the process by which you turn stock into cash – needs to be optimised for your business. In other words, you need to be getting cash flowing into your business as efficiently as possible.
Analyse every part of your cash inflow journey. Poor customer purchasing experiences, slow credit decisioning, unreliable shipping, unclear or incorrect invoices, and disorganised collection procedures all slow down the flow of cash.
Make sure you have honed every single part of this process to perfection. Make it easy to buy your product or service. Start your credit decisioning as early as possible. Make your invoices crystal clear, accurate, and send them immediately. Make your collection procedures standardised and understood. Recent research by BACS reveals that SMEs are owed £32.4bn in late payments. An additional £8.2bn cost burden is associated with time spent chasing late payments.
For further reading, check out our Business Owner’s Guide to Cash Flow Success.
7. Review your supply chain relationships
When it comes to your supply chain, take the time to question and analyse existing relationships, and shop around if you feel there are better deals to be had elsewhere. Particularly if you are in a relatively healthy financial position, you may find you can at least negotiate supplier terms and adjust them in your favour to make them more financially efficient.
8. Consolidate your business purchases
Take another look at your ordering processes and consolidate your purchases to save money. When making essential purchases, for example, stationary, raw materials, transport etc, make sure you are buying as a company rather than as smaller, separate divisions, teams or individuals. That way you can enjoy discounts, as well as cut down time spent organising and tracking individualised spending.
Make sure your purchase ordering systems are regularly under review to to ensure you are not over-ordering to secure discounts, which in the long run are not helping your business become more financially efficient.
9. Play your capital advantage
Make hay while the sun shines. If you’re coming from a position of strength in terms of cash flow, then you should be using this to the advantage of your business. Secure better terms from your suppliers if you’re a great customer. If you’ve secured better terms from them, then you can afford to allow more attractive terms to potential customers. Using your working capital to leverage better terms is a great way to get your money working for you, without necessarily spending it.
10. Optimise your inventory
Whether it’s ‘just in time’ stock control, bulk buying for discounted rates, or preparing for seasonal demand, your inventory needs to work for your business. Inventory management is a crucial part of keeping a financially efficient business. An efficient inventory management system should define and guide the physical process as well as documentation process. Both must be matched up and suited to the peaks and troughs of demand. Carefully analyse your inventory and stock control. Does it strike the right balance between order fulfillment, opportunity readiness, and operational leanness? Despite there being a certain level of psychological security in sitting on a large inventory of ready-to-go stock, it can also tie up a large part of your working capital.
11. Don’t forget the boring essentials
It’s important to keep a close eye on the less glamorous essentials that cost your business money as well as the more exciting growth and profit-focused priorities. Labour costs, property, travel, and energy consumption should be benchmarked and measured. These day to day costs can often go untracked yet they also can have a serious impact your profit margins, making your business less financially efficient. For example, if labour costs are disproportionately high compared to output, then look into whether you are providing the right procedures, training and tools for your staff to work as efficiently as possible.
12. Be smart with your business finance
It’s crucial to ensure your business has the necessary cash flow to make value-creating changes to inventory, supplier relationships, technology and processes.
If your business has continued with the same financing options for a length of time, now may be the right time to have a look around to see what else is out there. Any decision you make around alternative business finance providers should be based around maximum flexibility, simplicity and cost-effectiveness.
Pay4’s pre-approved revolving credit facility is insurance-backed so doesn’t rely on your business holding large capital assets. We don’t charge non-usage fees, so you can pick up the facility and put it down again when it’s needed, ensuring efficient use. 120 days credit allows you the flexibility to pay any invoices and retain the working capital you need to make financially efficient adjustments. Contact us to find out more