Stimulating growth in your small business can be done in a number of ways, but most business owners focus on increasing revenue. There are two key ways for small businesses to increase revenues. The first and most commonly applied way is to increase sales revenue by adjusting prices, increasing sales volume or a combination of both. The second way, and one that’s often overlooked, is by increasing operational efficiencies.
Every business can benefit from increasing their operational efficiencies, and doing so can mean undertaking a variety of improvements, depending on business and industry. For some businesses, it will mean reducing production waste or improving distribution channels; for others, it may simply be optimizing how you use your time or services so that your work becomes more profitable.
While there are consultants who offer these services, Excelsior Growth Fund’s Business Advisors have put together a three-step, low-cost and easy-to-implement strategy to help your business operate at peak efficiency.
Step 1: Investigate inefficiencies using free resources
Do you know how efficiently your business operates compared to others in your industry? The U.S. Small Business Administration (SBA), Small Business Development Centers (SBDCs) and others have compiled years of research into free and easy-to-use data to help you gain better insight.
- Contact your local SBDC and request a free industry-benchmark report, then make an appointment to review it with an SBDC representative. These annual reports show cost-structure and industry-average performance data. EGF’s Business Advisors can also help you obtain and review the report. In addition, SCORE recommends a free tool, SizeUp, which you can access via the SCORE website.
- Compare your company’s performance relative to the benchmarks. For example, consider looking into how your business’s operating profits, as well as how the cost of inventory, goods, and other production measures compare to other businesses in your industry. Note where your business is on target, where it varies, and whether it does better or worse than the average business in your industry.
Step 2: Determine the root causes of operational waste and address them
Now that you know how your business compares to industry averages, it’s time to make yours better than average by identifying and addressing operational waste.
While the comparisons you made will tell you what’s off, they won’t necessarily tell you why. Here are some of the primary reasons for operational waste:
- Poor inventory management: Inventory is often one of the largest expenses for a business, so it’s important that it’s properly managed and tracked. Common issues that can arise from poor inventory management include theft and loss, as well as excess or insufficient inventory. Issues with inventory are typically due to ineffective, inadequate sales tracking systems, which can contribute to losses in revenue and sales, and even business failures. For example, inventory that’s ordered too late will often result in loss of sales and overpayment due to expedited inventory shipping charges, while inventory ordered too quickly can result in stockpiles and inefficient use of your business’s cash flow. For these reasons, it’s important that small business owners invest in a good software system to improve inventory tracking — it will pay for itself many times over.
- Inefficient staffing: Having the right people in the right roles is critical to your business’s success, and few things will lead to operational revenue loss as quickly as inefficient team members.
Evaluate your staff – both the roles and the people in them. While conducting your evaluation, think about the following:
- Outdated, overly complex or otherwise inefficient work habits: If you’re not automating tasks such as bookkeeping, inventory management and appointments, then your business is bound to be losing money to operational inefficiencies. There are many excellent programs available to small businesses that can help business owners make better use of their time. Talk to colleagues, your accountant and others for recommendations, and look for software programs with free trial periods, so you can see what works best for your business.
Step 3: Remember this: Everything you spend on your business should add value to the bottom line
It’s true that not every role, process or relationship will drive revenue, but everyone on your team and everything you do should clearly add value to your business. If the value isn’t clear, then that aspect of your business is likely leading to waste and should be addressed.
Improving operations has immediate benefits and long-term impact
Give these tips a try: Soon, you’ll realize bottom-line improvements and will run your business with an eye for operational efficiencies that will benefit your company each time you implement a new process, offer a new product or service, or expand your markets.