Financial efficiency is one of the most important measures of any business. Potential investors will look at these metrics to decide if a company is worth the investment, and businesses can use them to monitor their economic health.
Eliminating financial inefficiencies helps a business make the most of its assets and attract investors. Since this is a multifaceted measurement, there are also many paths to improving it. Here’s a look at eight effective ways business owners can improve their financial efficiency.
Automate Repetitive Tasks
Every industry involves some amount of repetitive work that slows the company down. According to Smartsheet, more than 40% of workers spend at least 25% of their time on manual, repetitive tasks like data entry. That leaves quite a bit of room to improve with automation.
Many available software solutions today can automate things like data collection, approvals, billing, and scheduling. That can free employees to focus on more valuable work for several hours a day. Automated systems are also typically faster at these types of tasks, accomplishing more in the same amount of time.
Automating repetitive tasks can also reduce errors in these processes. With fewer mistakes, businesses spend less time fixing issues. All of these factors make automation one of the best tools for improving financial efficiency.
Communicate Quickly and Frequently
Another relatively straightforward improvement is to make communication easier. When employees aren’t on the same page, it can slow processes down and lead to mistakes. In contrast, when teams communicate well, they can collaborate more effectively, reducing errors and delegating tasks more efficiently.
Holding frequent meetings can help clear up any misunderstandings and bring any new information someone’s discovered to light. Quick communication will also help workers respond to any changing circumstances faster.
Businesses can improve communication by adopting tools like instant messaging services or video conferencing software. Management can also lead by example by sharing information frequently and holding regular meetings.
Review the Supply Chain
Another common source of financial inefficiencies is the supply chain. Logistics operations are prone to disruption, resulting in delayed payments, refunds, slow inventory turnover, and more. Reviewing supply chain operations and connections can reveal any potential weak points that could cause these issues.
Businesses should try to increase supply chain visibility as much as possible. Many solutions today can help, like GPS tracking to monitor fleets in real-time and AI-powered fleet management software. These tools can reveal where disruptions happen and help address them.
Companies may need to switch suppliers, re-shore some operations, or move away from single sourcing. After reviewing the supply chain, it’s important to keep using these visibility tools to see and react to incoming changes.
Improve Inventory Visibility
Inventories are another area where many businesses can afford to be more efficient. According to one survey, 34% of e-commerce businesses have shipped products late because they accidentally sold out-of-stock items. Getting more insight into current inventory levels helps avoid mistakes like this.
Technologies like RFID tags and warehouse management systems (WMS) can help. These provide real-time updates on which items are where. Businesses can also set up automatic alerts when stock levels reach a certain point, helping them order more efficiently.
How a business manages its inventory depends on its specific needs. Just-in-time inventory practices may work for companies with limited space and fluctuating demand, but businesses with long supply chains and consistent demand may need more inventory.
A business’s outstanding debts and expenses can also impact its financial efficiency. One potential solution to make the most of these is to refinance them. There may be opportunities to save long-term or lower monthly expenses that companies don’t realize until they look into refinancing.
For example, a business may have a company car they’re still paying off. As they make more payments, own the car for longer, and their finances change, they may be able to get a better rate. Refinancing could save $150 a month or more, propelling higher profits per month.
Businesses could also consolidate some of their debts, switch financial partners, or make similar changes. While seemingly small, these shifts could give companies more wiggle room in their finances every quarter.
Offer Multiple Payment Methods
Accounts receivable turnover ratios are one of the most common ways to measure financial efficiency. Long collection periods could indicate problems on the horizon, so the quicker a company gets payments, the better. One way to help speed that process is to offer multiple payment methods.
Customers will generally act faster if things are convenient for them. Confusing, lengthy, or intimidating payment processes will make clients take their time when addressing their bills. In contrast, if they can choose whichever method works best for them, they’ll have an easier time, leading to faster payments.
Every customer will have their own preferred way of paying, and these methods will be faster for them since it’s what they’re familiar with. Accepting multiple methods appeals to a wider range of these preferences.
Standardization is one improvement that’s as easy to implement as it is to overlook. Since every business has regular tasks and processes, they all have things they could standardize. Having a specific method for these actions lets employees perform them faster.
Without a standard process, actions like billing a client may take a fair amount of guesswork. As a result, errors are more likely, which will take more time to correct. If billing were standardized, employees would know exactly what to do, eliminating mistakes and streamlining the process.
Standardization also lets workers use templates for some tasks, saving more time. As businesses standardize more of their processes, they may also discover new areas that could use automation.
Set and Track Benchmarks
No matter what other changes a business makes, it must track its progress. Setting financial efficiency benchmarks is crucial, as it gives companies a clear goal to aim for. With a specific goal, it’s easier to see how effective any other changes are.
Seeing progress is a great motivating factor for business owners, and benchmarks provide the means to measure progress. Alternatively, if some changes don’t turn out positively, regular reports will help company leadership see that and react accordingly.
As businesses become more financially efficient, they should set new, higher goals. Remember that this is an ongoing process, but aiming for benchmarks can keep employees motivated throughout.
There Is Always Room to Improve
Even if a business is in excellent financial health, there are likely areas where it can improve. These eight steps represent some of the most common and effective changes to make to increase financial efficiency, but it’s not an exhaustive list.
Businesses should continually review their standings and consider steps like these to pursue ongoing improvements. If companies can effectively implement them, they can outshine their competition.