How to identify your business bottleneck — and solve it

Every company has its own way of getting the job done. Over time, certain processes can become standard operating procedures that aren’t frequently revisited or evaluated for efficiency. This practice can result in a business bottleneck or constraint, which is tolerated rather than transformed.

The impact is that a bottleneck in one area can – and almost always does – impact the overall company’s performance.

Here’s how to make sure that doesn’t happen.

Identify your bottleneck

In any given business, bottlenecks often occur in one of three areas:

1. Sales. This bottleneck encompasses the size and expertise of your sales team, the strength of your advertising/marketing support, and competitive pressures.

2. Operations. This bottleneck impacts the production quality and capacity due to outdated equipment, limitations in your physical plant, and production process inefficiencies.

3. Finance. This bottleneck relates to inefficient access or use of capital to achieve company goals.

Identify and deploy resources to fix it

As VeraBank’s chief banking officer, one of my primary responsibilities is to help companies determine the most efficient use of capital to achieve long-term improvement. Every company has its own debt capacity, and every CEO needs to define the most effective and efficient use of that credit to correct the bottleneck.

To get a general idea of what your potential credit option parameters are it’s helpful to compute your debt service coverage ratio, which is your earnings before interest, taxes, depreciation and amortization (EBITDA) over the last 12 months divided by your future annual debt principal and interest.

If that ratio is 1:1, the company has just enough cash flow to service its principal and interest payments, so there is no room for error. A better measure would be a ratio of 1.25:1 which means the company has 25% more cash flow than it needs to pay its debt obligations. The higher the ratio, the lower the risk and the more options to help remove the bottleneck. In addition to reviewing the numbers, you also need to take into account your risk appetite. If your decision keeps you up at night, you may want to reconsider your position.

In my experience, I can assure you that if you have a bottleneck, you’re not alone. Bottlenecks can be caused by equipment, individuals, inventory, archaic processes, and inefficient procedures.

Bottlenecks thrive on inertia. Removing them requires a singular focus, supported by sufficient resources to get the job done right and without delay.

Find the bottleneck in your company. My team and I will find the tools and support to provide appropriate capital to generate long-term improvements.*

About VeraBank
VeraBank is a privately owned community bank that serves 19 counties in East, Central and Southeast Texas with 550+ employees, a network of 39 conveniently located branches, $4.3 billion in assets, and trust assets under management of approximately $1.2 billion. Since 1930, VeraBank has remained committed to genuine banking, providing excellent personal service with the latest in banking technology. Visit us online at verabank.com. Member FDIC.

*Loans are subject to credit approval

This article has been republished with permission. View the original article: How to identify your business bottlenecks - and solve it.