Certain uncertainty

People don’t like uncertainty. Businesses don’t like uncertainty. But with the beginning of the new year, the beginning of a new decade, the one certain thing we begin with is uncertainty.

I have spent some of the weekend listening to the so-called experts predict what is going to happen to the economy in 2010. This is an annual ritual. If there is anything we should learn from this ritual it is that nobody is any good at fortune-telling, at least consistently.

One expert says the Dow Jones Average will go up. Another expert says the Dow Jones Average will go down. One expert says GDP is going to grow at 5%. Another expert says we should expect another recession. Some expert will be correct and win his 15 minutes of fame. For the rest of us, our level of uncertainty increases.

Since I am as capable as anybody else I’ve heard recently in predicting the future, let me give you my predictions for 2010. In 2010 I predict more volatility, higher interest rates, more budget deficits, a more difficult IRS, and more government regulation.

I predict Congress will continue to act irresponsibly and we will have to contend with tons of unintended consequences to legislation they passed without reading. I expect this decade we will see significantly higher taxes and higher inflation. But the prediction I have the greatest faith in is we will survive our government as we have for more than 230 years. It will just take more effort this decade than the last decade.

For businesses, uncertainty is just another word for risk. Many people believe entrepreneurs and business owners love risk. If you own your own business you know this is not true. You too are risk adverse, or should be. Who wants to lose money? The difference between you and the rest of the world is that you are not afraid of risk and you will find ways to reduce your risk.

One the most common tools you can use to reduce your business risk is to prepare a business plan. How the plan looks on paper is not important. What is important is the time and effort given to thinking about your business. I remember reading an Inc. magazine article that said most business owners who complete a business plan put them in a drawer and never bother to look at their plan again during the year. What was important was the thought processes completed in preparing the plan. In a time of great uncertainty thinking about your business becomes more important.

I’m not suggesting that you, an entrepreneur and business owner, don’t think about your business. I’m sure you think about your business most of the time … midnight, 1 a.m., 2 a.m. sometimes, until you get out of bed. What I am suggesting is that you look at your business with the same vigor and mental energy you brought to your business when you began your business; the time when you were most excited, optimistic, and resourceful about your business. Really think about your business. Prepare a business plan this year for yourself, not for your banker.

Peter Drucker said the purpose of business is to create a customer. When was the last time you truly analyzed your target market? What are you doing to create a customer? Are you just hoping for the best or are you proactively working to create that new customer? If your business has not been very profitable ask yourself if you should be in your particular business. Many business owners wait too long to ask that difficult question. Industries emerge, grow, mature and die. If your business is characterized by low sales growth and thin gross profit margins, ask yourself if you should consider Plan B. You can’t control the economy but you can control what activities you perform to create a customer.

Look at alternate futures. Rather than projecting just one level of sales, project sales with different scenarios: pessimistic, optimistic, and the most probable. What happens to your cash flow at the different sales levels? Do you need to be speaking with your banker now? A great benefit of considering different scenarios is that you will identify your business’ trends quicker enabling you to make faster adjustments to your environment to protect your profitability. Since you considered multiple scenarios, many decisions will have already been thought through and made in advance depending on business conditions.

When solving a problem, we tend to stop thinking at the first solution we find. This isn’t always the best solution. When considering your business future don’t stop with the first alternative you create. Exhaust yourself and create more alternatives.

No sane person would build a house or building without a blueprint. Why is it that many people attempt to build their business without a plan? Do yourself a favor and create or update your business plan this year. You might surprise yourself on how accurate your predictions will be. You can’t control the economy but you can control your response to the economy.

Difficult times might be ahead but don’t you just love a challenge? If you didn’t why would you be in business? Is the future one of fast growth or one of short term struggles? Nobody knows.

Whatever the future holds, entrepreneurs and business owners are an innovative lot. It’s this group of people who have made the United States the engine that drives the world’s economy. Because of our prosperity we have become the whipping child for the world. When we trip and fall so does the world. When we get up and run we pull the world along. Isn’t it great to be an entrepreneur and a small business owner in the United States?

You help change the world for the better. Kick butt this year! Live long and prosper.

David Potts is a certified public accountant also accredited in business valuation. Owner of Potts & Company, Certified Public Accountants for more than 25 years, his practice focuses on small and medium size businesses and their owners in the areas of taxation, accounting and bookkeeping, business valuation and business advisory services. He is a Fort Smith native and a graduate of the University of Arkansas. You can follow more of his thoughts at ThePottsReport.com. Although every effort is made to provide you accurate and timely tax information, it is general in nature and not specific to your facts and circumstances. Consult a qualified tax professional to discuss your particular case.