With the big government “bail out” of the financial markets looming, the question comes up about personal responsibility and ethics. On one hand, the individuals who overextended themselves with a mortgage that was too much to handle are responsible. They got themselves in too deep. Maybe they based their ability to pay on faith in a revenue stream that faltered, or didn’t act conservatively enough by allowing extra room in the budget for rising costs, things like the price of gas. No one expects to lose their job, get sick, or be impacted so heavily by outside circumstances, generally speaking, right? You have to live somewhere, right? Yes, you do.

On the other hand, these individuals were granted a mortgage, often at high rate, by businesses that were doing the same thing – banking on future revenues that didn’t happen, lending money that didn’t allow for continguencies. Some would argue that the corporations were even cognizant that they were swimming in dangerous waters, but took the risk anyway, because the payoff would be so large. A business should aggressively pursue profits, right? A business should do all that’s allowed by law to grow, right? Of course.

What does this whole scenario have to do with you running your entrepreneurial business? First, part of planning includes continguencies for extreme circumstance. If you are so highly leveraged, with no downside protection to cover catastrophe, you will get pinched. Review what would happen if the worst actually did happen and plan to cover that worst case scenario. Get life insurance, get disability insurance, get fire and lost revenue insurance and don’t leveage yourself with debt so heavily that you will be out of business if one little detail goes astray.

Second, another part of planning is budgeting. Entrepreneurs tend to overstate revenue projections and understate expense projections. This is exactly opposite of what you should do. You aren’t being positive minded by doing this, you are being foolish. Yes, keep a positive outlook, but do so intelligently. Just like remodeling your home, things happen – it will probably take twice as long and cost twice a much. Allow for this and you will be fine.  Hope is not a business strategy.

Lastly, business planning includes using a calm, observant point of view. I know how deeply important your business is to you. I know how personally invested you are in seeing it through. But, the future brings changes. Be aware of your market, know the trends in your industry, and let go of the products and services that are no longer relevant in your field. Be forward thinking. Do you know how hard hit the pager industry was when phones added a walkie-talkie feature? It was bad. Hardly anyone was buying or using pagers and the industry, which had not allowed for this technological advance, were counting on continuing revenues that, well, did not continue. Most of these revolutions don’t happen overnight, so stay attuned to the changing needs of your clients and the changing face of your industry.

Being a responsible business person goes beyond following the law. It means being involved, engaged, and aware, allowing for downside while planning for good times. Don’t get caught without a roof over your head, because it’s an unknown whether anyone will be there to bail you out. You deserve better than that, so you need to plan better than that.

Together, we are stronger.
Vicki Flaugher, the original SmartWoman

 

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