Capital Efficiency: Getting More from Your Funds

What’s the common instinct when markets get rocky? Raise more money. But piling on debt or chasing another funding round isn’t the only answer. Capital efficiency is about getting more mileage from the funds you already have—disciplined growth with a built-in safety net.

And this discipline matters more than ever in today’s market. Nearly two-thirds of SMEs surveyed earlier this year expect economic conditions to decline over the next 12 months, according to the BDC. Keeping cash flow and capital efficiency top of mind is what will help prevent you from flying blind into another funding round or burning through the money you already have. 

We spoke with Brian Didsbury, CPA and Senior Manager/Controller at LiveCA, to help business owners understand what’s at stake with capital efficiency and clarify a few financial concepts along the way.

What is capital efficiency?

At its core, capital efficiency measures how effectively a company uses its resources to generate revenue and growth. Picture your dollars working overtime instead of clocking out early.

Metrics like return on capital employed (ROCE), burn multiple, revenue per employee and gross margin return on investment (GMROI) are some of the most common capital efficiency metrics. 

“Textbook jargon can be confusing, but capital efficiency isn’t that different from running your household. You need to know what’s coming in, what’s going out and whether you’re building enough cushion for the future,” says Brian. 

Pro tip: Being capital-efficient isn’t the same as being profitable. A business might appear profitable on paper while being cash-strapped, or conversely, burn through too much cash in pursuit of growth. Efficiency is about balance.

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Why capital efficiency matters

Capital efficiency is a crucial accounting metric. Used properly, it also serves as a lifeline for long-term growth. 

Well-implemented capital efficiency:

• Enables businesses to grow without constant fundraising or debt
• Attracts investors by showing disciplined financial management
• Improves resilience in downturns or slow cash cycles
• Frees up resources for innovation and scaling

Efficiency is tied to control and predictability that help you meet commitments. For example, if your finances are tightly timed, late payments can create strain in trying to meet payroll cycles. 

How to measure capital efficiency

Let’s look at some common ways finance pros might talk about capital efficiency metrics and capital efficiency ratios (or how much money goes into the business compared to what it generates).

Here are a few key ways to assess it:

• Burn multiple: For startups, this shows how much cash you’re burning to generate new revenue (net burn ÷ net new ARR).
• Return on capital employed: EBIT ÷ capital employed. A higher ratio signals stronger returns on every dollar invested
• Cash conversion cycle: The time it takes to turn investments like inventory into actual cash flow.
• Revenue efficiency ratios: Revenue ÷ capital invested.

Brian notes that the best measure depends on your business’s stage and structure.

“For startups that aren’t profitable yet, it’s all about understanding runway,” he says. “You need to know how much cash you have and how long it will last before you need to raise or become cash flow positive. For more mature SMBs, debt ratios and debt service costs matter more.”

These capital efficiency ratios help businesses see if their funds are working for them or sitting idle. 

Common barriers to capital efficiency

If capital efficiency is so valuable, why do so many businesses trip over it? Simple. They can’t manage what they can’t see. 

Without clear visibility into where money’s actually going, owners are left making gut calls instead of data-driven ones. Those kinds of quickfire decisions work for lunch orders, not strategic financial moves.

Some of the most common hurdles include:

• Excessive overhead or wasteful spending
• Poor payment terms, such as slow receivables and fast payables
• Over-investment in low-return projects
• Relying on external funding instead of optimizing internal cash

Brian adds that mismatched cash cycles are a recurring problem. 

“Businesses that sell physical goods often run into this,” he says. “They buy inventory up front, but it takes months to sell. Suddenly, they can’t make payroll because all their cash is tied up in stock.”

Strategies to improve capital efficiency

Drastic cuts aren’t the solution to improving working capital efficiency. Instead, prioritize smart, practical adjustments. 

Brian recommends six go-to strategies for capital efficiency:

1. Speed up receivables

Automate invoicing and collections, and use platforms and tools so clients pay automatically. You should avoid chasing invoices whenever possible.

2. Slow down payables

Don’t pay vendors early unless there’s a discount. Use full credit terms and negotiate for extensions where possible.

3. Right-size your cash reserves

Cash keeps you running, but too much just sitting in the bank is dead weight. Anything above what you need for working capital should be earning interest, paying shareholders or funding growth.

4. Cut spend bloat

Audit subscriptions and tools regularly. If something isn’t being used, cancel it.

5. Buy smarter

Lock in annual contracts for core software tools, as these types of savings can hit 10 to 20%. For hardware like laptops, leasing may beat buying outright.

6. Use automation and tools

Real-time visibility makes all the difference. Float allows you to analyze spend by vendor or category, spot waste quickly and even earn yield on excess cash.

The right mix of discipline and automation helps businesses stretch every dollar further and strengthens capital efficiency in financial management. 

Capital efficiency in different business contexts

While the strategies apply universally, the emphasis can shift by stage as your business grows or by the type of business you run. 

Startups are typically pre-profit and cash-flow negative. Their focus should be on runway, or controlling spend long enough to hit profitability or the next funding round.

More established SMBs, by contrast, face questions of capital allocation. For these businesses, it’s less about survival and more about sustainability. If cash significantly exceeds your working capital needs, that’s poor capital allocation. There might be a better use for that cash, like growth investments, dividends or acquisitions. 

For non-profits, capital efficiency looks a little different. The goal isn’t to maximize shareholder returns, but to ensure that every donated or granted dollar goes as far as possible to support impact. 

Float: Supporting best practices for sustainable capital efficiency

Capital efficiency doesn’t mean doing more with less. It means doing more with what you have, with confidence and clarity. Thriving businesses manage cash cycles tightly, cut waste ruthlessly and use tools to provide visibility and control.

Float was designed to make that job easier. From automating expense capture to earning yield on unused balances and providing finance teams with real-time spend controls, it helps Canadian businesses make working capital efficiency an everyday practice.

“The biggest risk is making decisions based on gut, not data,” says Brian. “When you have visibility into spend, into timing and into your real runway, you can make smarter calls.”

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