When small business owners open their doors for the first time, they dream of operating at maximum efficiency. But after a couple weeks go by and the excitement surrounding the launch dies down, a small business owner will notice the occasional empty table, idle employee or merchandise that's still on the shelf. This is the world of excess capacity.
According to Trading Economics, businesses in the U.S. operate at about 79 percent of their potential capacity, meaning about 20 percent of their goods or services are wasted. Statista reports that this number is even lower for the hotel industry, with the occupancy rate dropping to around 65 percent in 2017. That equals millions of dollars lost, thousands of people unemployed and impoverished, and few bonuses and raises for those who have jobs.
If you think this issue has geographical borders, think again. In China, there is excess industrial capacity that's set to have a "corrosive" impact on the country's future growth and efficiency. In Germany, the excess steelmaking capacity decreases prices, undermines profitability, and jeopardizes the existence of businesses and branches across the world. Excess capacity is real in every country, across every industry – and it's hurting the global economy.
Identifying your business's excess capacity
If you're a smart business owner, you'll do anything to get rid of your excess capacity. A business can't operate and grow when goods or services are going to waste. Excess capacity stifles that dream, causing business owners to lose money rather than gain it. In fact, cash flow is a top concern for small business owners, and it's not hard to see that excess capacity is to blame.
So how can you identify this problem in your own business? Think about the goods or services that you can still sell. Is it unbooked time, advertising space, restaurant seats or baseball tickets? Whatever the answer is, that's your excess capacity.
For example, say you recently opened a restaurant that has 100 tables but you only seat 80 tables on a regular basis, resulting in 20 open seats. If your average check size is $75 and you turn those 80 tables over twice a day, then calculating your excess capacity is simple: $75 (average check size) x 2 (turns per day) x 20 (open tables) = $3,000 per day in excess capacity. If your restaurant is open every day, then multiply your excess capacity by 365 and you're looking at $1,095,000 in lost revenue every year.
Handling your excess capacity
Without monetizing your excess capacity, you miss the chance to grow your business and change the world at large. So how do you go about monetizing your excess capacity? You must lean on non-cash transactions.
Over 30 percent of the global economy runs on non-cash transactions, and that's prior to the financial crisis. If you look at it from a business perspective, 65 percent of all Fortune 500 companies use non-cash transactions – and most of those transactions center on minimizing excess capacity.
For instance, when Mercedes wanted to sell 1,000 buses in Ecuador, negotiations spanned two years. The country couldn't afford 1,000 luxury buses. But an opportunity was presented when Ecuador found itself sitting on a vast plain of bananas that were at risk of going to waste. When Mercedes heard this information, the company offered to take the bananas as payment for the 1,000 buses, allowing both sides to decrease their excess capacity.
PDX Food Swap is another example. In Portland, Oregon, there's a gathering where locals come together to trade homemade food goods. The offerings mirror what you'd see in an upscale market, but there's one main difference: The business owners are focused on non-cash transactions. In fact, the creator of the PDX Food Swap wants to build a cashless trading system to fuel community and business growth.
Monetizing your excess capacity using non-cash transactions is the solution to growing your business. By operating at maximum efficiency, businesses not only experience success but help improve the world.