Symptoms of Inefficient Businesses
How Efficient Is Your Business?
Is your company showing common symptoms of inefficient businesses?
Businesses that are more efficient create more profit. Many businesses spend no time at all working on efficiency. Action is taken only when something big goes wrong and it impacts a customer or the staff start leaving.
Efficiency is not just a scaling issue. But even the smallest of businesses can actively improve efficiencies. Building efficiency into your business is easier and more effective if it happens BEFORE you scale. Here are some of the key factors you need to consider when looking at business efficiency:
Key Person Reliance
Inefficient businesses rely heavily on an individual. It is a major risk and impacts the business value. Especially if the key people are the business owners who can’t take time out (holidays, retirement, manage health challenges). The business operations AND the value are both negatively impacted. This is especially true if key people get sick or just tired and have less energy to keep going.
The people you start with are frequently not the people you need to grow. The skills and experience of the management team need to match the business direction. This also assists with management succession. The business will overcome the challenges to grow effectively. Business owners wishing to leave the business need the right people on the company board and in key management roles.
Systems in Inefficient Businesses
Consistency of service delivery or product quality often suffers when a business starts to scale. Having the right business processes in place adds value and profitability. When business procedures and systems are documented it improves performance and teamwork. Management team and owners of un-systemised businesses complain about having to micro-manage. They find it time consuming and expensive to train replacement staff.
Lack of Documentation
Putting a plan in place doesn’t guarantee success on its own. It does help team alignment to common goals. The plan is the blue print for business direction. Other important documentation is used for compliance and strategic reasons. This includes key relationships (clients, suppliers and employees) and due-diligence documentation.
Rhythmic Acquisition of New Customers and Retention of Existing Customers
Repeat or referred business is a classic indicator of a positive revenue generation model. A scatter gun approach to getting sales costs more for the business to get new business through the door. A heavy reliance on a few key customers is also a risk when it comes to reliability of future revenue.
Inefficient Business Reporting
A track record of reporting and forecasting across all areas of the business is a positive sign. Reports show who is making decisions and on what basis. The alternative is ‘gut feel’ which is a culmination of experience, but is a risky basis for decision making across all aspects of the business.
Poor Use of Technology
Outdated or underutilised plant and equipment poses risks to business sustainability. It creates competitive vulnerability, and breeds complacency. Ineffective management of intellectual property presents risks and can undermine the value of a business, particularly where it gives the business a competitive edge.
Personal finances mixed with business may bring short term gains in personal wealth, but these can come at a much higher long-term cost. Business finances that are independent of the business owners are easier to sell for both the buyer and the seller.
Remember that if you’re looking to sell the business or have it valued for any reason, your company’s efficiency translates into £££’s. Reliability of future revenue, basic business sustainability and capacity to finance growth all add capital value. Inconsistent cash flow, poor or inconsistent profit margins, and carrying unprofitable products/services all diminish value in your business.
Each of these inefficiencies need specific action. When you look at this list and see how much work might need doing in your business, it can feel overwhelming. Started on just one thing to move your business forward. Getting help accelerates that progress.