How to increase productivity in your small business

Published Thursday 12 March 2026

Table of contents

• What is productivity?
• Types of productivity
• Why productivity matters
• Common productivity challenges for small businesses
• How to increase productivity
• Better work tools
• Smarter methods
• Skilled workers
• Entrepreneurship
• How to measure productivity improvements
• Increase productivity checklist
• Making productivity improvements in your small business
• FAQs on increasing productivity in small business
• References

Key takeaways

• Document your current work processes and identify bottlenecks like double handling, momentum loss, and recurring errors, then redesign workflows to eliminate these inefficiencies and create clearer task sequences.
• Automate repetitive administrative tasks such as invoice reminders, bank reconciliation, and expense categorisation using business software to free up hours each week for revenue-generating activities.
• Prioritise high-impact activities by focusing on revenue-generating work first, applying the 80/20 rule to identify your most valuable tasks, and delegating or eliminating low-value activities that don't contribute to business goals.
• Invest in better tools by listing potential improvements, calculating expected returns on each investment, and ranking them by ROI to make smart decisions that amplify your team's efforts without breaking your budget.

What is productivity?

Productivity measures how efficiently your business turns inputs into outputs. The more productive you are, the better you convert resources like labour, capital or materials into products or services you can sell. Higher productivity means you can grow revenue without proportionally increasing costs.

Types of productivity

Small businesses typically focus on three types of productivity:

• Labour productivity: measures output per hour worked, commonly expressed as pounds earned divided by hours worked
• Capital productivity: measures how well you monetise investments in assets like machinery, often calculated as return on capital invested (which is also a profitability ratio)
• Materials productivity: measures how efficiently you use inventory, energy and other materials to generate sales

Why productivity matters

Productivity matters because it directly affects your profitability and resilience. Businesses with higher productivity get more from less, giving them room to absorb rising costs, handle slowdowns and compete on price.

According to Organisation for Economic Co-operation and Development (OECD) data, productivity gains are getting harder to achieve after decades of continuous improvement. Small businesses have typically been thought to lag behind larger competitors, although a recent Xero report is challenging some of these assumptions.

Common productivity challenges for small businesses

Most small business owners face similar obstacles when trying to improve productivity. Recognising these challenges is the first step to overcoming them.

Common barriers include:

• Limited budget: investing in new tools or training feels risky when cash is tight
• Wearing too many hats: handling multiple roles leaves little time to step back and optimise
• Outdated systems: manual processes and disconnected tools create unnecessary friction
• Difficulty delegating: trusting others with important tasks takes time and clear processes
• Lack of visibility: without good data, it's hard to know where time and money are actually going

The good news is that many productivity improvements don't require large investments. Small changes to processes, tools and communication can deliver meaningful results.

How to increase productivity

You can increase productivity by improving your resources, processes, people or strategy. There are four commonly accepted ways for a business to boost productivity:

1. Better work tools (capital investment)
2. Smarter methods (process innovation)
3. Skilled workers (capability building)
4. Entrepreneurship (strategic optimisation)

Better work tools

Better tools amplify the efforts of their users. A carpenter can do far more with an electric drill than a hand drill. The same principle applies to business software.

Sometimes the right tool is as simple as software that cuts down double-handling of information. A booking system that schedules jobs straight into your calendar, or accounting software that integrates with payments and point of sale, can save hours each week.

Why you haven't invested in better work tools yet

Upgrading tools costs money, and many small business owners hesitate. Research by Professor Marc Cowling of Oxford Brookes University identified the main barriers:

• Difficulty prioritising: Small businesses typically have multiple investment opportunities but struggle to choose between them without clear return on investment (ROI) data.
• Perceived risk: Most owners only consider investments they expect to pay for themselves within two years. This risk aversion is common, with one report finding 53% of UK entrepreneurs would not start a business for fear it would fail, even when seeing a good opportunity.
• Access to finance: Overall loan success rates are low (less than 50% on average), and after a rejection, it can take up to four years before a business applies again.

How to make smart tool investments

1. List your top capital investment ideas.
2. Calculate the actual cost to implement each one.
3. Estimate the expected return on each investment.
4. Rank them by ROI from highest to lowest.
5. Consult your accountant or bookkeeper to identify the opportunity that makes the most sense for your budget.

Smarter methods

Smarter methods help you get more done with the same resources. Many businesses develop processes once and never revisit them, even as circumstances change. Regularly reviewing and improving how you work can unlock significant productivity gains.

Write down your processes

Record the steps you follow to complete jobs. Set aside time each week and involve your staff, as their perspective will highlight things you might miss.

Use templated documents to capture the same information for every job. This helps everyone understand what to do, when and how. The simple act of writing things down often reveals inefficiencies and gaps.

Look for blockers

Review your documented processes to identify bottlenecks and roadblocks. Your employees will have valuable insights, so encourage honest feedback. Mapping workflows visually can make problems easier to spot.

Watch for these common inefficiencies:

• Double handling: tasks passed back and forth repeatedly or duplicated across roles
• Momentum loss: jobs stalling at the same point every time
• Poor sequencing: tasks completed in an illogical order that creates delays
• Recurring errors: the same mistakes or customer complaints appearing repeatedly
• Misallocated effort: skilled workers distracted by low-value administrative tasks

Redesign your workflow

Address each inefficiency systematically to redesign your workflow. You can often make significant improvements through simple changes:

• Clarify roles and responsibilities so everyone knows their part
• Resequence tasks to create a more logical flow
• Improve communication between functions that depend on each other
• Ensure people know where to find the information they need

Consider outsourcing tasks you struggle with or find draining. External providers charge fees, but the investment often pays off through improved focus and efficiency.

Automate routine tasks with technology

Automation handles repetitive work so you can focus on higher-value activities. Many small business tasks can be automated with the right software, often saving hours each week. According to a McKinsey report, data collection and processing are the two activities most likely to be automated.

Start with these high-impact automation opportunities:

• Invoice reminders: Set up automatic payment reminders to reduce time spent chasing customers.
• Bank reconciliation: Use bank feeds to match transactions automatically instead of manual data entry.
• Expense categorisation: Let software sort expenses into the right categories as they come in.
• Recurring reports: Schedule financial reports to generate and send automatically.

Even basic automation can free up significant time. Look for tasks you do repeatedly and investigate whether software can handle them.

Prioritise high-impact activities

Not all tasks contribute equally to your business success. Focusing on high-impact activities helps you get better results from the time you have.

Apply these principles to prioritise effectively:

• Focus on revenue-generating work: Tasks that directly serve customers or drive sales should come first.
• Apply the 80/20 rule: Identify the 20% of activities that create 80% of your results and protect time for them.
• Delegate or eliminate low-value tasks: If a task doesn't clearly contribute to business goals, consider whether it needs doing at all.
• Batch similar tasks: Group related activities together to reduce context-switching and improve focus.

Review your priorities weekly. What felt urgent last month may no longer be the best use of your time.

Consider digital adoption

Software can dramatically boost business efficiency, with Office for National Statistics (ONS) data showing that small firms using at least two technologies see productivity gains of 25% by centralising information, speeding up communication and automating repetitive tasks. The learning curve pays off when you're free to focus on what you do best.

There's software for most business functions:

• Invoicing and paying bills
• Managing inventory and tracking stock
• Bookkeeping and financial reporting

Check your work actually matters

Check that your work actually matters to customers. You don't want to invest time and energy into things that don't move the dial for your business.

Talk to your customers through surveys or conversations. If aspects of your offerings aren't resonating, consider investing less in them and redirecting effort to what customers value most.

Skilled workers

Skilled workers are more productive workers, a link supported by ONS data which found that even small improvements in management scores are associated with a 9.6% increase in productivity. Large businesses can afford specialists who excel at specific tasks. Small businesses typically hire generalists who wear multiple hats, but you can still set them up to succeed through proper training and support.

Onboarding and training

Proper onboarding and training directly increases productivity. Set each employee up for success by:

• Providing a clear job description with defined roles and responsibilities
• Explaining how tasks should be done, with supporting documentation
• Training thoroughly on all tools and software they'll use
• Sharing the business values and priorities so they understand the bigger picture

When people understand what's expected and how to deliver it, they make better decisions and work more efficiently.

Giving and receiving feedback

Regular feedback improves productivity by preventing repeated mistakes and surfacing better ways of working. When something's not done quite right, take time to explain the problem and solution. Otherwise you'll get stuck redoing work instead of delegating with confidence.

Feedback works both ways. Use these steps:

1. Ask employees what they did well, how and why.
2. Reinforce the positives by sharing what went well, with specific examples.
3. Invite their ideas on how to speed up or refine the work.
4. Collaborate on those ideas and set new goals where appropriate.

Improve team communication

Poor communication wastes time and creates mistakes. Small teams can boost productivity significantly by setting clear expectations and using the right tools.

Improve team communication with these approaches:

• Set response time expectations: Agree when messages need immediate attention versus when they can wait.
• Reduce email chains: Use project management tools to keep discussions organised and visible.
• Hold shorter, focused meetings: Set clear agendas and stick to them.
• Create a single source of truth: Store key information in one accessible place so people don't waste time searching.

Good communication doesn't mean more communication. It means the right information reaching the right people at the right time.

Entrepreneurship

Entrepreneurship isn't just about launching a business. It's the ongoing process of optimising how your business operates. Entrepreneurs unlock productivity by finding better ways to combine their available resources. This involves some risk-taking, but the rewards can be significant.

Harness your inner entrepreneur to boost productivity

• Scale up: Increase output to lower the marginal cost of each product or service you produce.
• Acquire strategically: Buy or merge with another business to gain complementary workflows, consolidated operations or improved logistics.
• Specialise: Double down on a narrower niche to drive speed, expertise and quality, and consider cutting services that don't earn much.
• Optimise supply chains: Switch to suppliers that provide superior goods or complementary services.
• Build an innovative culture: Hire and empower entrepreneurial people who look for better ways of working.

How to measure productivity improvements

Tracking productivity helps you understand whether your changes are working. You don't need complex systems. A few simple metrics can show whether you're heading in the right direction.

Consider tracking these productivity indicators:

• Revenue per employee: Divide total revenue by the number of employees to see output per person.
• Time to complete recurring tasks: Measure how long regular activities like invoicing or reconciliation take.
• Invoice payment time: Track how quickly customers pay after receiving invoices.
• Percentage of time on revenue-generating work: Estimate how much time goes to admin versus customer-facing activities.

Review your metrics monthly or quarterly. Look for trends rather than focusing on individual data points. If a metric isn't improving after you've made changes, investigate why and adjust your approach.

Accounting software like Xero can generate reports that help you track financial productivity metrics automatically.

Increase productivity checklist

Here's a checklist of productivity-boosting steps to take in your business:

Better work tools

• List investments that would improve productivity
• Price each solution
• Calculate the expected return on each investment
• Choose the option that offers the best mix of affordability and impact
• Consult your accountant or bookkeeper for greater certainty

Smarter methods

• Document and map out your work processes
• Identify friction points like double handling, stall-outs and repeated work
• Clarify roles, resequence tasks and fix communication breakdowns
• Adopt software for repetitive admin tasks, or consider outsourcing
• Check your processes against customer preferences to ensure effort is well spent

Skilled workers

• Create an accurate job description for each role
• Explain how each part of the job gets done, both verbally and in writing
• Provide comprehensive training on all tools and software
• Share the business vision and values
• Meet regularly to give and receive feedback

Entrepreneurship

• Identify opportunities to scale up aspects of your work
• Stay alert to acquisition opportunities
• Consider specialising in a profitable niche
• Regularly review your supply chain for improvements
• Hire and develop entrepreneurial people

Making productivity improvements in your small business

Small businesses have huge potential to improve productivity. Make it part of your routine by continually examining and refining your processes, investing in the right tools, and watching for inefficiencies that creep in.

Xero's cloud accounting software helps automate time-consuming bookkeeping tasks, giving you back hours each week to focus on growing your business. Get one month free and see how the right tools can transform your productivity.

As a bonus, efficient businesses are less likely to suffer delays, confusion, breakdowns in communication, distractions and waste. That means increased productivity often goes hand in hand with increased satisfaction for you and your team.

FAQs on increasing productivity in small business

Here are answers to common questions about improving productivity in small businesses.

What does 'increase productivity' mean for a small business?

Increasing productivity means getting more output from the same or fewer resources. For small businesses, this typically means serving more customers, generating more revenue or completing more work without adding staff or working longer hours.

How can I measure if my productivity has improved?

Track simple metrics like revenue per employee, time spent on recurring tasks and invoice payment times. Compare these figures monthly or quarterly to spot trends and confirm whether your changes are delivering results.

What's the fastest way to increase productivity in my business?

Start by automating repetitive tasks like invoice reminders and bank reconciliation. These changes often save hours each week with minimal setup time or cost.

Should I invest in new tools or improve processes first?

Improve your processes first. Better tools won't help if your underlying workflows are inefficient. Once you've streamlined how work gets done, you'll have a clearer picture of which tools will add the most value.

How can Xero help me increase productivity?

Xero automates time-consuming bookkeeping tasks like bank reconciliation, invoicing and expense tracking. It integrates with over 1,000 business apps, helping you connect your financial data with other tools you use. This reduces manual data entry and gives you real-time visibility into your business performance.

References

OECD. (2023). Compendium of Productivity Indicators.

Professor Marc Cowling. (2024). Understanding small firms investment appraisal.

Professors Marc Cowling and Nick Wilson. (2024). The puzzle of underinvestment.