Productivity and Your Business
December 2014
Productivity is equally important to the success of your business. Assuming there is sufficient demand, an increase in productivity can have a dramatic impact on profitability.
- But what makes a business productive?
- How can a business owner improve productivity?
- How can you measure productivity so you know you are improving?
Productivity is a measure of efficiency – the input required to produce a unit of output.
Take for example a printing company: its productivity is measured by how many brochures can be produced per unit of input. The printing process requires labour, paper, ink and the printing machine to create the final product – the inputs. The printing company can improve productivity if it can produce more brochures using fewer man hours and less ink – or fewer inputs.
Economies of scale
Productivity can improve through economies of scale. Economies of scale are achieved through growth as generally the more widgets you produce the less it costs to produce each widget. But what if you are a small firm that grows slowly? If this is the case, you may still increase productivity through at least two other ways: training and technology.
Training
Improving the skills and competencies of your workforce is an effective way to boost productivity. Investing in your human capital is a smart way to fuel growth and efficiency. Well trained employees work better, safer, and smarter, and are more innovative and produce higher quality products and services with less waste of valuable resources and inputs.
There are a number of federal and provincial employment incentive programs available to small businesses such as federal and Ontario apprenticeship tax credits, co-operative education tax credit for student hires, employment insurance premiums tax credit and more. We can provide advice about these programs and how they can benefit your business.
In the course of preparing the financial statements and tax returns for clients who employ tradespersons, such as businesses in the automotive, plumbing, electrical, and carpentry sectors we enquire if they employ, or plan to employ apprentices. These are just a few examples of the 45 trades that are part of the Red Seal Program. These trades qualify for the apprenticeship training tax credit both federally and in Ontario.
We find that many eligible clients are unaware of the tax credits available for a qualifying apprentice. We work with our clients to file successful claims for both credits and also provide information on related grants available to the apprentices themselves.
New technology
Introducing new technology can improve your operating efficiency. Advanced, sophisticated hardware and software can automate and streamline processes.
Note that investing in new technology also means that you will need to invest money in training to ensure that your people can effectively and efficiently use the new tools employed by them. There is nothing more frustrating and productivity sapping than technology that you don't understand and consequently don't use to its full potential to maximize productivity.
In recent years, Canada Revenue Agency has offered accelerated write-offs for both computer hardware and software. These situations present tax planning opportunities in the timing of client purchases of new technology.
Scientific Research and Experimental Development Program (SR&ED)
The SR&ED program is a federal tax incentive program, administered by the Canada Revenue Agency (CRA), to encourage Canadian businesses of all sizes and in all sectors to conduct research and development (R&D) in Canada. It is the largest single source of federal government support for industrial R&D.
The SR&ED program gives claimants cash refunds and/or tax credits for their expenditures on eligible R&D work done in Canada.
As reported on the CBC News website November 2, 2011 - A report released by Canada's Science, Technology and Innovation Council in June found that Canada invests less in innovation than key global competitors. That report said universities and governments in Canada were playing their part in investing and conducting R&D, but the private sector was falling behind and limiting Canada's overall innovation performance. It warned that Canadian businesses need to invest more on research and development so the economy can cash in on ideas from the country's impressive talent pool.
If you want to learn more about SR&ED and discuss whether it may be applicable to your business, call us to discuss.
Increasing productivity improves business success – we can help you explore the programs and options available to you.
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