ACCOUNTING FOR THE PARETO PRINCIPLE 4: Which 20% of a Small Business is Critical

The Pareto Priniciple (also called the 80% – 20% Rule) has been applied in a variety of fields & disciplines; e.g., business management, time management, management of sales people, project management, development economics, etc. Basically, the Pareto Principle states: in any endeavor, a 20% segment can explain the status of almost anything and can influence what can or will happen to the undertaking. The Pareto Principle has also been called the Rule of the Vital Few and the Trivial Many.

For small businesses, it is best if you consider the 20% as critical and the 80% as important (and not trivial items which can be handled haphazardly or, worse, ignored).

Which 20% of a small business should be considered critical?

Equity
For starters, you should make sure that you have enough funds for the business. Your equity should be sufficient to cover the permanent long term requirements of your business; i.e., fixed assets (premises, expensive equipment, furnitures & fixtures, etc). If you borrow to put up your equity, you are starting on the wrong foot and facing a future of never-ending interest expenses.

Other critical areas in a small business in the succeeding posts.

image from Microsoft Clipart