guest commentary by David Potts
David Potts is a certified public accountant with more than 25 years experience (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.)
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Last Friday night I was walking into the kitchen to get a Triple Double Oreo Neapolitan cookie. The kitchen TV was on CNN.
Anderson Cooper was interviewing Paul Begala about the Obama-Romney debates and asked Mr. Begala if he was scared that President Obama might lose the election. Mr. Begala replied there are only two ways to run for office: unopposed or scared.
Mr. Begala then said “you have to honor every threat.” He gave credit for this sage advice to the Strategic Air Command, stating they had this instruction posted on each of their computer screens.
It is easy to see the importance of this advice when your job duty is to watch for incoming nuclear weapons. But I think this advice is equally important for business owners. A threat to your business may not be at the level resulting in the destruction of mankind, but unattended, a threat could destroy your profitability.
Many threats are obvious: the threat of lawsuits, excessive government regulations, failure to back up your important data before a computer crash, or lousy economic conditions. But some threats are more subtle, more difficult to identify. As a CPA working with many different businesses, I’ve been in a position to see some of these more subtle threats to businesses.
• Putting All Your Eggs in one Basket
What happens when a small business lands a big customer? I mean a really big customer, one that comprises 50%, 60%, or maybe 80% of your business’ total sales.
The tendency is for the company to focus 95% of the company’s efforts and resources on satisfying that big customer. In my practice I’ve had the occasion to observe this situation more than once. When that large customer goes down the street to a competitor or its business demand decreases, the business is left in a big hurt.
Businesses need to work real hard to keep their customer base diverse and not dependent on one or a few large customers. If your type of business allows it, develop customers within diverse industries. This will help mitigate the risk.
• Operating Too Far From Home
When I first started my career I remember someone tell me that the farther you get away from home, the more likely you are to lose money. Granted there are tens of thousands of companies that operate nationally or globally. But many times businesses expand their geography with sad results.
I believe the cause is operating in an unfamiliar market or stretching your supervisory management too thin. Expanding your geography can be done successfully, but proper planning is needed to mitigate this risk.
• Hiring the Wrong People
This threat is hard to identify quickly and the smaller the business the more magnified the problem. The attribute that is difficult to identify up front is your new hire’s attitude.
Some people just believe it’s all about them. But every business owner knows that it is always about the customer. How can you tell that this new hire will perform when your business has one of those “we’re pushed to the limit” moments? In most instances you won’t be able to tell until this event happens.
Every business, but especially a small business, needs employees to have an entrepreneurial attitude.
How can a business mitigate this risk?
Do your due diligence when you hire a new employee. Call their references. Observe them closely for a few months. And if you make a mistake and hire the wrong person, fire them early rather than later.
• Miscellaneous Threats
There are always numerous threats to every business, many subtle. For example, How’s your marriage? Divorce can cause serious financial damage to a business. How is your health? What would happen if you, the business owner, had to miss six months’ worth of work? Do you really want to manage your cash flow by getting behind on your payroll tax or sales tax payments?
Some threats have minor consequences, but some threats have catastrophic consequences. So it is wise for each and every business owner to remember this instruction given to the men and women of the Strategic Air Command: Honor every threat.