Improving business efficiency during a potential economic downturn might seem like an intimidating endeavor, but it boils down to primary objectives: maximizing your resources and minimizing unnecessary costs.
Between economic uncertainty, labor costs, and logistical delays, it’s natural for business leaders to wonder how their company can survive and thrive in an evolving business environment.. Although this scenario isn’t ideal, it provides an opportunity to take a step back, reassess their processes, and develop plans to improve business efficiency.
This article will explore different ways to evaluate business efficiency and cover practical tips to keep your organization profitable and resilient—even when times look tough.
What is business efficiency?
Business efficiency refers to how effectively a company uses its resources (money, labor, materials) to produce an output (products and services). High-efficiency businesses maximize their resources to create sustainable profits.
Business efficiency answers key questions, such as:
- How productive are my employees?
- How much waste does our company produce?
- Are we seeing a positive return on the tools, materials, and talent we invest in?
Put simply, business efficiency is about achieving your desired outcome while spending less time and money.
6 Types of business inefficiency
There are several ways to gauge business efficiency. Here are some of the most important areas of focus:
1. Financial efficiency
This refers to how well a company uses its assets to generate income. Common measures of financial efficiency include:
- Overall profitability
- Fixed asset turnover
- Receivable turnover
- Inventory turnover
As a rule of thumb, operational costs should be 60% or less of revenue, while expenses should be 30% or less of revenue.
2. Operational efficiency
Business operations encompass the wide range of activities an organization uses to produce goods and services. This includes aspects such as:
- Manufacturing
- Supply chain management
- Customer service
- Accounting, finance, and payroll processing
Operational expenses usually make up the majority of a company’s costs. Accordingly, it’s important to focus on operational expenses when you need to improve business efficiency.
3. Process efficiency
Business processes refer to how a company handles the various operations mentioned above. Evaluating process efficiency could include monitoring internal processes such as shipping, assembly, or company meetings.
4. Eco-efficiency (energy efficiency)
This measures how much energy is needed to operate a business. Eco-efficiency encompasses costs such as air conditioning, heating, lighting, and fuel. Monitoring eco-efficiency helps companies find ways to drive down energy costs.
5. Labor productivity
Labor productivity measures how much employees accomplish during an average workday. This could be represented as the number of products assembled, packaged, etc.
Labor productivity is impacted by a variety of factors like equipment quality, technical training, and automation.
6. Return on investment (ROI)
ROI is a key performance indicator, which is calculated by dividing the profit earned on an investment by the cost of that investment. For example, if a company purchases a new machine for $1,000 and increases their revenue by $10,000, the ROI would be 0.9, or 90%.
The higher the ROI, the more efficient the business becomes.
4 Benefits of improving business efficiency
Business efficiency should always be top-of-mind for business leaders, but it comes even more important during times of economic uncertainty. Let’s cover four reasons to prioritize efficiency.
1. Higher profits
The primary benefit of business efficiency is improving the company’s bottom line. By cutting unnecessary expenses and streamlining processes, companies can pad their margins and re-invest into the business.
2. More resilience
An efficient business is a resilient business. Companies that are weighed down by unnecessary costs, redundant tasks, and outdated processes may have more trouble navigating uncertain times than companies that proactively optimize their business model.
3. Customer satisfaction
Improving efficiency obviously benefits the company, but it benefits customers too. Optimizing your workflow allows your team to operate faster and smarter, which will surely satisfy the people your business serves.
4. Employee satisfaction
Inefficient business operations may negatively impact your company culture. However, freeing up your team members from tedious tasks and instilling an efficient work environment can empower them to reach their full potential.
5 Ways to maximize business efficiency in an economic downturn
Although there’s no foolproof plan to guarantee success during difficult times, business owners can implement simple steps to keep the business running as efficiently as possible.
1. Invest in automation
Automating tedious or repetitive tasks frees your team up to focus on higher-level work. This could include things like data entry or inventory counts. Business process automation also minimizes the risk of human error, which hurts efficiency.
Teams can automate countless processes with software tools including:
- Accounting software
- Project management software
- Inventory management software
- Email and social media marketing software
Some organizations may be hesitant to implement new technologies if they see an economic downturn ahead. However, automation keeps organizations agile over the long run and helps them navigate uncertainty.
Keep in mind, just because you can automate something doesn’t mean you always should. Keep in mind how automation may impact your customer experience and other areas that require a personal touch.
2. Make calculated budget cuts
Slashing unnecessary spending can increase business efficiency, as long as it’s done with a clear plan and open communication with team members.
There are several areas to consider budget cuts, such as:
- Vendor relationships: explore other options for materials, packing supplies, shipping, etc.
- Real estate: can you downsize your office or go fully remote?
- Low-performing products: if customer demand is low for certain products, it might be time to consolidate resources into more profitable ones.
3. Keep meetings to a minimum
Some meetings are essential to keep the wheels of the business moving. That said, filling employees' schedules with unnecessary meetings can pull them away from work that would otherwise boost overall efficiency.
Instead of scheduling individual meetings, consider doing team-wide huddles to save time. Alternatively, you can handle meeting agendas asynchronously, instead of face-to-face,via email or internal messaging apps.
4. Limit energy usage
Conserving energy might not be the first idea that comes to mind when you’re planning for an economic downturn, but small changes add up quickly.
This could mean investing in energy-efficient business equipment, staggering your work hours to reduce peak demand, or getting an energy audit.
5. Stick to processes
It can be tempting to cut corners when uncertainty is ahead. And while this might save time or money in the short term, it raises the risk of errors and malfunctions that hurt companies in the long run.
Instead, establish processes that ensure all tasks are completed quickly, but effectively. Having official processes also keeps employees on the same page so they can work more efficiently.
How QuickBooks Enterprise helps keep your business running efficiently
As you can see, there’s a lot that goes into increasing business efficiency. That’s why it’s helpful to have integrated solutions like QuickBooks Enterprise, which offers key functionality to boost efficiency across every aspect of your organization.
From inventory tracking to payroll automation to order management, Enterprise has a customizable suite of tools designed to streamline business operations so you can do more with less.
If you’re a well-established, growing compny, QuickBooks Enterprise has the tools you need to keep your company running at maximum efficiency.
Final thoughts
Improving business efficiency is your first line of defense against economic turbulence. You can’t control external factors like the market or customer behavior—but you can control how your organization prepares for tough times.
