Boosting Financial Efficiency: Smart Strategies for Small Businesses

Running a business is difficult. That’s why the small business failure rate remains so stubbornly high in good economic times and bad. It’s why people tend to self-select into entrepreneurship based on their propensity to take risks — and why many risk-averse people with legitimately great ideas put those on the back burner in favor of the relative security of a regular old job.

If you’re reading this, you’ve already decided to take the leap into small business ownership. You’re well aware of the risks. Now, you’re trying to manage them and give your business every possible advantage. You want your enterprise not only to survive but to thrive.

Your business needs to be as financially efficient as possible for that to happen. Scratch that — your business needs to be financially optimized.

Boosting Financial Efficiency in Your Small Business

Most successful businesses focus on three vital strategies to improve financial efficiency: streamlining lending and borrowing processes, simplifying payment processing, and managing cash flow more effectively.

1. Streamlining Lending Processes

If you’re in the business of extending credit, streamlining your company’s lending processes is not a “nice to have” capability. It’s mission-critical.

Simply scaling your existing lending operation won’t cut it. Hiring more loan officers may help you make more loans, but it won’t make your loan origination team more efficient. By adding layers of bureaucracy, it could have the opposite effect.

Instead, equip your lending team with the best available tools for the job. Take an unsparing look at your existing technology stack and ask not what needs to go but what — if anything — is worth saving. All too often, the answer is “absolutely nothing.”

Not in the lending business? You almost certainly rely on some form of business credit to keep the lights on and the leads coming in. Knowing what you know now, you’d be remiss not to quiz your current lender(s) and any alternatives you’re considering about the back-end tools they use to get the job done. When minutes (and hundredths of a percentage point) matter, the old way of doing things is unacceptable.

2. Simplifying Payment Processing

The old saying, “A bird in the hand is worth two in the bush,” gets at a fundamental truth every business owner learns sooner or later. That is, it’s better to have a dollar today than two dollars at some point in the future.

Okay, maybe that’s taking things too far. A 50% discount rate is way too steep on any timetable that matters to a growing business. But every business is willing to accept a haircut if it means actually getting paid on time.

In the simplest terms, that haircut represents the amount you’re willing to pay for a more efficient payment processing solution, plus the unavoidable costs (person-hours, bookkeeping software, and so on) of managing accounts receivable and integrating payments into your company’s cash flow. The same principle applies to accounts payable, including payroll, especially if your business works with many independent contractors or small vendors willing to use your preferred payment processing solution to send bills and accept payment.

Your ideal approach depends on how your business earns its money and how (and to whom) it pays for the products and services it requires. The key variable is transaction volume — not just today, but expected volume in two, three, or five years. Payment processing solutions that are perfectly adequate for a comparative trickle of transactions may fall short when growth takes off. So, look for a scalable payment processing tool that can grow with your business.

3. Managing Cash Flow More Effectively

Your business possibly makes consumer or business loans. It may send or receive (or both) digital payments in high volumes and at high frequency.

But it definitely makes and spends money somehow. Which means it stands to benefit from more effective cash flow management.

You know this already, or you wouldn’t still be in business. What you might not (yet) know is how to get from “state the problem” to “implement the solution yesterday.”

The truth is, there’s no catch-all solution to the cash flow management problem. Different businesses solve it in different ways. There’s a lot to consider here, which is why you’ll find (and maybe have already read) encyclopedia-length books on the subject.

With the understanding that we’re only just scratching the surface here, let’s take a look at three aspects of cash flow management that nearly every business has to face at some point: efficient invoicing, intelligent expense management, and inventory optimization.

Financial Efficiency in Invoicing

If your business sends out more than a few invoices each month, it needs a scalable invoicing solution that cuts down the time cost of invoicing itself and helps your accounts receivable team stay on top of unpaid bills.

Unless you’re already off to the races, this solution needn’t be enterprise-grade or even close. Off-the-shelf software is fully capable of juggling all those invoicing balls: onboarding new vendors, creating and sending invoices, receiving invoices generated through the API, and — of course — sending and receiving payments.

Intelligent Expense Management

Spreadsheet-based expense management and two-dimensional P&L templates work until they don’t. Before your business reaches that point, deploy a more robust solution to track, understand, and attack your expenses.

You don’t need an overly complicated enterprise solution here, either. In fact, QuickBooks works for millions of SMBs. It’s “smart” enough to tell you that, for example, you’re spending 25% more on inputs than the typical peer business, and its outputs are detailed enough to help you pinpoint opportunities to tame that overage.

Inventory Optimization

Like your expenses, your inventory gets complicated quickly as your business grows. It’s a nonlinear process that can quickly overwhelm your logistical capabilities and pose an existential risk.

Unlike invoicing and expense management, inventory optimization does require a truly robust solution, even at a relatively small scale. Once you’re past a few dozen SKUs, you’re competing against better-resourced businesses whose supply chain management budgets dwarf your gross revenue (for now, at least). You can skimp elsewhere — not here.

Your Small Business Can Do Better

Don’t take that personally. It applies not just to your small business and countless others like it but to some of the world’s biggest, best-run companies.

The iconic businesspeople behind some of the most successful companies in the world all know that they can do better. They ask themselves the same question at the start of each day: what can I do today to make my team just a tiny bit more efficient, effective, or productive?

Then they execute. And iterate. And debrief. And do it all again tomorrow.

Connect with an Old National Small Business Banker for more insights to help your business grow.

This article was written by Editorial from Small Biz Technology and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.