There are a number of steps business owners and managers can take to increase efficiencies to improve profitability.
These involve both reducing or controlling costs, and ensuring a better marketing focus to increase sales.
Our top ten tips include:
1. Key performance indicators
KPIs are those elements that the business has identified as vital to its success. They could include: sales figures; customer retention; aspects of the manufacturing process; or turnover. Calculating and reporting KPIs in a timely manner provides a snapshot of actual business performance, allowing any issues to be identified before they have a major effect on the bottom line.
2. Business plan
It’s important for the future success and growth of a business to invest the time in creating a business plan.
Business planning allows a vision for the business to be created and measurable goals established so that the vision can be achieved.
- Clarity and focus in the direction of the business
- Greater ability to make continuous improvements and anticipate issues
- Greater confidence in decision-making
3. Cash flow
Creating cash flow forecasts allows better understanding of when money is coming in and going out, so that any delays or shortfalls can be managed.
Focusing on the following will help with managing cash flow:
- Debtors – invoice promptly, invoice progress payments, offer discounts for prompt payment, offer different payment options and follow up outstanding debtors.
- Creditors – negotiate credit terms, take advantage of discounts, don’t pay earlier than required.
- Inventory – keep accurate and timely records, replace slow-moving products, and mark down dead inventory for quick sale.
Encourage customers to keep coming back by ensuring their needs are met and providing quality service:
- Do what you said you would do
- Communicate regularly
- Give the customer the opportunity to provide feedback
- Implement a loyalty or referral program.
5. Best practice
If the business’s processes were developed many years ago and the comment ‘this is the way it’s always been done’ sound familiar, it may be time to review the process.
Best practice means adopting the best ways of working to achieve business objectives, for instance by:
- Keeping up-to-date with what competitors are doing and benchmarking against other successful businesses.
- Encouraging a culture of innovation and creativity
- Making good use of technology
There are often opportunities to negotiate better terms with suppliers.
Review current supply contracts and take advantage of any discounts for prompt payment or extended payment terms. Also, seek competitive suppliers and get comparative quotes.
7. Banking relationships
Meeting with the business’s banker to discuss current facilities and business positions enables a better understanding of the terms of current facilities as well as other available facilities. For example, there may be better interest rates available, reduced fees, more convenient ways to pay, or the availability of credit to assist with cash flow.
Engaged employees are more productive and committed to a business and this can have a positive impact on business performance. Improve employee engagement through:
- Effective communication
- Mentoring programs
- Delegating responsibilities
- Providing opportunities for advancement
- Empowering employees
Adopting environmentally friendly processes is good for the environment and may also lower operating costs.
- Implementing paperless procedures such as electronic filing of emails or electronic billing and banking
- Printing double-sided and re-using scrap paper
- Switching off lights and computers at the end of each working day
- Substituting incandescent lamps with compact fluorescent lamps
- Installing timers or thermostats to maximise efficiency of air-conditioning
There are only so many hours in a day and therefore productive days are important for efficiency and success.
- Mark Twain said ‘eat a live frog first thing in the morning and nothing worse will happen to you the rest of the day’. Develop the habit of ‘eating a frog’ by starting on the most difficult task (or the task you are most likely to procrastinate on) and persevering until it is complete.
- Clean and sort the e-mail inbox to save some valuable time.
- Write down a task list, prioritise based on importance, complete unfinished work and consider delegation of tasks to others.