In today’s economic climate, Canadian business owners face a stark reality. More than four out of ten businesses are dissatisfied with their current level of profitability, and with rising costs and slowing demand, the pressure to perform has never been greater. Yet amid these challenges lies an often-overlooked opportunity: operational efficiency isn’t just about cutting costs, it’s about unlocking the capacity for sustainable, profitable growth.

The Profitability Priority Shift

Recent data from BDC’s State of Entrepreneurship Report reveals a fundamental shift in business priorities. Improving profitability has emerged as the number one priority for 40% of Canadian SMEs over the next 12 months surpassing growth initiatives, new customer acquisition, and even technology adoption. This isn’t surprising when you consider that 41% of businesses report being dissatisfied with their current profitability levels.

The interesting revelation? Twenty-five percent of businesses are prioritizing cost reduction, while 28% are focusing on customer retention. These aren’t competing strategies, they’re complementary pillars of operational efficiency that, when executed well, can deliver profitability improvements of 15-20% or more.

The Efficiency-Growth Equation

Many business leaders view efficiency and growth as separate tracks: you either focus on optimizing what you have, or you invest in expansion. This is a false dichotomy. The most successful companies understand that operational efficiency creates the foundation for sustainable growth.

Consider what happens when inefficiencies plague your operations. Overproduction ties up working capital. High inventory levels consume cash flow. Poor quality and rework drain resources. Idle machines or staff represent sunk costs. Inefficient processes slow speed to market. Wasted time compounds across the organization. Poor resource utilization erodes margins. And underperforming systems create friction at every level.

Each of these inefficiencies doesn’t just cost money, they prevent you from capitalizing on growth opportunities. When your operations are streamlined, you free up resources, improve cash flow, enhance customer experience, and accelerate your ability to respond to market demands.

The Data Speaks: SMEs Are Taking Action

The good news is that Canadian businesses aren’t waiting for conditions to improve. Seventy-four percent of SMEs have taken concrete action to improve their productivity over the past 12 months. The most common initiatives include:

• Adopting new technologies (30%)
• Revising internal processes (24%)
• Training employees (22%)
• Automating tasks (20%)
• Reinforcing existing technology use (20%)

These aren’t massive digital transformations requiring seven-figure investments. They’re strategic, focused improvements that deliver measurable results. And the returns can be substantial.

The 15-20% Profitability Opportunity

When we analyze the impact of operational efficiency improvements, a clear pattern emerges. Businesses that systematically address inefficiencies across their operations typically see profitability improvements in the 15-20% range. Here’s why:

Direct Cost Savings: Process optimization, automation, and waste reduction directly reduce operating costs. Whether it’s reducing rework, eliminating redundant steps, or optimizing resource allocation, these savings flow straight to the bottom line.

Improved Asset Utilization: When equipment, space, and human capital are used more effectively, you extract more value from existing investments. This means you can handle increased volume without proportional increases in overhead.

Enhanced Customer Experience: Efficient operations translate to faster delivery, better quality, and more responsive service. This drives customer retention and reduces the cost of acquisition, both major profitability levers.

Accelerated Cash Flow: Leaner inventory management and faster cycle times improve working capital. This creates flexibility to invest in growth opportunities or weather economic uncertainty.

Scalability Without Complexity: Well-designed processes scale more efficiently than ad-hoc operations. As revenue grows, your cost structure becomes more favourable, expanding margins.

Where to Focus: The High-Impact Areas

Not all efficiency improvements deliver equal returns. Based on what we’re seeing in the market and our work with clients, here are the highest-impact areas for most SMEs:

Process Documentation and Standardization: Clear, shared processes eliminate confusion, reduce errors, and enable consistent execution. This foundational work often delivers immediate improvements and enables future automation.

Technology That Fits: Ninety-seven percent of companies using AI report it helped their business, primarily through time savings and increased efficiency. But technology is only valuable when it solves real problems. Focus on tools that address specific bottlenecks in your operations.

Data Visibility: You can’t improve what you can’t measure. Businesses that implement clear metrics and dashboards make better decisions, identify problems faster, and optimize more effectively.

Cross-Functional Integration: Silos kill efficiency. Breaking down barriers between departments, improving communication, and ensuring smooth handoffs can eliminate massive amounts of waste and delay.

Employee Capability: Training isn’t just about skill development; it’s about empowering your team to work smarter. Twenty-two percent of businesses are prioritizing employee training as a productivity lever, and for good reason. Your people are your most important efficiency multiplier.

From Efficiency to Growth: The Strategic Path Forward

The businesses that will thrive in the coming years won’t just weather economic uncertainty, they’ll emerge stronger by building operational resilience. Here’s how to think strategically about efficiency:

Start With Assessment: Before implementing solutions, understand where the real opportunities lie. Map your processes, identify bottlenecks, and quantify the impact of inefficiencies. This creates a data-driven roadmap for improvement.

Prioritize Quick Wins: Build momentum with improvements that deliver visible results quickly. This creates buy-in and funds further optimization efforts.

Think Systems, Not Silos: The biggest gains come from optimizing across functions, not within them. Look for improvements that benefit the entire value chain.

Build for Scale: Design processes and systems that can grow with you. Flexibility and scalability prevent future technical debt and allow you to capitalize on opportunities as they arise.

Measure and Iterate: Efficiency isn’t a one-time project. Establish feedback loops, track performance, and continuously refine your operations.

The Competitive Advantage of Operational Excellence

With 142,000 small and medium-sized businesses in Canada expected to transition ownership in the next five years, operational efficiency will increasingly differentiate winners from those struggling to compete. Companies that have invested in streamlined operations will be more attractive to buyers, more resilient during economic transitions, and better positioned to grow.

The path forward is clear: operational efficiency isn’t a defensive strategy, it’s the foundation for profitable growth. By systematically addressing inefficiencies, leveraging appropriate technology, and building processes that scale, SMEs can unlock the 15-20% profitability improvement that positions them for long-term success.

The question isn’t whether to invest in efficiency, it’s how quickly you can start and how strategically you can execute.

References

This article draws on data and insights from:

• BDC State of Entrepreneurship Report 2025 – A comprehensive analysis of Canadian SME priorities, challenges, and transformation initiatives based on surveys of Canadian business owners.
• BDC Small Business Week 2025 Webinar – Presentation on boosting profitability and operational efficiency, featuring current statistics on Canadian SME priorities and productivity improvements.
• BDC Survey on Canadian SMEs’ Attitudes and Use of AI Products and Services (April 2024) – Research on AI adoption and its impact on efficiency and business performance.

For more information on these reports and resources for Canadian entrepreneurs, visit BDC’s Analysis and Research section.