Sorting Problems into Buckets

Years ago, when I was in business school, a small business management professor gave a lecture that I still remember to this day. The crux of the lecture was that the majority of problems in an organization can be sorted into three buckets: lack of revenue, lack of cash, or lack of systems. I think this is a useful framework for diagnosing the issues that may be facing your business, and they can be expressed in several ways:

Lack of sales

This one is fairly straightforward. Not enough money coming is a big problem, and this can look like: • Falling profit despite flat expenses • Competitors have proliferated, reducing market share • Cost of sales is too high because the proportion of new customers to repeat customers is too high

Lack of cash

As I mentioned in my previous blog post, the phrase “cash is king” is especially true in a small enterprise, and a shortage of it can be fatal. A cash shortfall can manifest itself in multiple scenarios:

• Can’t afford to hire new employees during a growth period • Collections calls from vendors are becoming more frequent • The collection of accounts receivable is behind schedule • The rate of current assets to current liabilities is uncomfortably low • Too much inventory on hand, which brings a 0% investment return to the company

Lack of systems (policies, procedures, controls, best practices, etc.)

This can also handicap an organization, and it can show up in several forms:

• Not getting enough repeat business due to not having a system of following up with clients post-sale to keep the company top of mind with them • End-of-day cash count often not matching the till • Too much time spent by staff on administrative tasks instead of the work they were hired to do • Poor accounting records – this is a big one because without properly organized and presented accounting records, management can’t know the financial health and performance of the organization. Management instead has to rely on gut instinct.

These problems can be draining for a small business owner or non-profit director to confront, but they’re not insurmountable. If you think your small organization could use some help from an accounting professional, please let me know!