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Considering a Business Management Program? 3 Ways to Evaluate Company Efficiency

Successful young business woman
Efficiency is the minimization of costs and maximization of profits. When companies are efficient, they use resources in the most beneficial way to reach their goals. Working in management positions requires an awareness of efficiency and how to best serve the company when making decisions. Resources that must be managed efficiently include employees, equipment, finances, and other assets. When these are optimized, profitability and productivity can both increase. For anyone pursuing a career in business, these methods will be both interesting and useful tools to have in your arsenal. Read on to learn some of the ways you can determine efficiency in a business!

1. Inventory Turnover may come up after your Business Management Program

An inventory turnover ratio indicates how many times a company has sold and replaced inventory during a time period, leading to a conclusion of how many days it takes to sell inventory. This is a great way to make better informed choices with pricing, manufacturing, purchasing, and marketing. This ratio is calculated by dividing the cost of goods sold by the average inventory.

Average inventory is found by subtracting the end inventory from the beginning inventory and dividing the result by two. Low turnover ratios come from weak sales and sometimes from excess inventory. On the other hand, high turnover is due to either strong sales or not having enough inventory. After learning about assessing and improving systems in a business management program, you may become more interested in this ratio.

emale Inventory Manager Shows Digital Tablet Information to a Worker Holding Cardboard Box, They Talk and Do Work. In the Background Stock of Parcels with Products Ready for Shipment.Inventory turnover ratios help companies determine whether they are selling and stocking efficiently

2. Understand how to Calculate Average Collection Period

The average collection period is the number of days between the dates sales were made and the dates payment was received. In accounts receivable, this average is often referred to instead as “days’ sales”. This can be calculated either by dividing 365 days by the accounts receivable turnover ratio, or alternatively by dividing the average accounts receivable balance by the average credit sales per day. The accounts receivable turnover ratio is found by dividing net credit sales by average accounts receivable for a given period.

This tracks the company’s ability to collect payments. Results can be compared to an industry benchmark, to see how well business is doing in terms of efficient collection. A low period is usually a sign that the company is doing well collecting payments in a small amount of time. A high collection period can indicate that changes need to be made to decrease liability.

3. Don’t Underestimate the Importance of Performance and Customer Reviews

Customer feedback can sometimes be overlooked when evaluating a business, but it’s very useful to be able to see products and services from an important perspective. Improving customer experiences can increase client retention. It may also point to areas where services could be changed for efficiency. Different tools can be used to gather customer feedback, such as surveys or reviews.

Performance reviews are also beneficial to a company, especially one that wants to grow. Happy employees are up to 20% more productive than unhappy ones. Through performance reviews, areas of improvement can be identified and addressed for both employees and management. You may be eager for feedback yourself, when starting a career after business college. Transitioning from educational environments to professional positions is made easier when open communication is used to tackle efficiency on all fronts.

Portrait of architects having discussion in officePerformance reviews can help employees stay happy and productive

Are you interested in business management training?

Contact Oxford College to find out more!

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