Finding Efficiency Savings Is Just The First Step

Finding Efficiency Savings Is Just The First Step

I think the vast majority of business would agree that there are inefficiencies in their day to day operations. The scale of these inefficiencies varies depending on any number of variables including the size of the business, the number of staff, delegation of duties and numerous other factors. Trying to change how you operate to plug these gaps is certainly an effective way of increasing profitability. However, you should make sure the cuts don’t suffocate your ability to generate revenue. But the process of making efficiency savings involves one final step that many neglect.

1. Identifying Inefficiencies

The first step in the process involves identifying where you business is losing time and/or money where it shouldn’t be. Are there bottle-necks in certain departments? Are there subscriptions or services you signed up to years ago and no longer use but are still paying for? Have you surplus cash that would be better spent on capital projects rather than sitting in the bank?

Some inefficiencies will be blatantly obvious; other will be more subtle. It could simply be the case that within say the stock ordering process you have an extra step that serves no real purpose. Once an audit of time and cash resources is carried out, they need to be prioritised. My advice here is to go for the low hanging fruit – the biggest numbers on the P&L or the things that take the most time should offer plentiful scope for savings.

2. Removing Inefficiencies

You may find this the most difficult part of the process. Sometimes it may involve making really difficult decisions such as discontinuing a part of your business or letting staff go. The question needs to be, is it in the best interest of the business? Not just in the short term but over the next 3-30 years. Some savings may, on the other hand, be very easy to make. Some might even involve spending more money than you are now. Maybe one of your suppliers offers a price break for orders over a certain level so instead of ordering every week, you order in bulk once a month to get a better price. In one business I was involved in, I identified a potential saving of £14,000 per year by doing this.

You should also be remembered that time is as valuable, if not more valuable, than money. This is something I firmly believe in. For example, if you are suffering a nominal amount of breakage or shrinkage in stock every year and the solution is to add an extra process or check to try and combat this, it is only worth doing if the time dedicated to doing this is less than the expected saving. If you’re losing £50 a month on stock getting damaged, it is not worth having some one spend 5 hours a month policing this. You just have to suck it up.

3. Converting Savings

Very often once inefficiencies are identified and rectified, businesses think it is job done. Not the case. The time or money you saved now needs to be put to use. No point in freeing up 2 hours of a workers time per week without then deciding on the best way of reallocating this time. For all you know, if left to employee judgement, this time will then go back in to something that is just as inefficient as the time-suck you’re just after fixing.

The same goes with cash. If you find an extra £10,000 a year from inefficiencies and let it wallow in the bank earning <1% per annum, you may as well have not saved it. Find something with a better return to spend it on or use it to pay down financing with higher interest rates. If this step is done correctly, you’ll effectively get double savings – the initial saving plus the return on time and money being invested smartly.