Matters Column

Not preparing for the inevitable has predictable results

September 19, 2014
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You should put on shingles before it starts raining: I heard that when I was a kid. Recently, I did not follow that simple adage.

There is a downspout on our 1890's vintage home that repeatedly comes loose. When it does, the rain fills a corner of the basement with water. The last time it happened, the store where I had planned to buy the necessary materials to fix the downspout had gone out of business. That gave me one lame short-term excuse for not fixing the problem.

Here's where things get stupid. It is reasonable to assume that it will rain again in Michigan. When it rains again, things having been left the way they were, a wet basement is a pretty good bet. Yep, it happened again. Being that the wet corner is by the washer and dryer, I was a little concerned about sleeping in the same room with my wife that night. I have since fixed the problem.

How many problems that businesses face are predictable and, if addressed promptly, would have been a small problem instead of a big one?

This issue applies to almost every aspect of business. The weather on any day in Michigan is unpredictable, but in the big picture you know that rain, just like winter, will always arrive. Maybe the day is not predictable, but unfortunately its arrival at some point is certain.

The business at which I had planned to buy the supplies to fix the downspout was closed when I arrived. A sign was affixed to the door saying that due to the bank’s actions, the owners had been forced to close. As business owners, we know the sign should have read differently. It should have said that due to the actions of the owners, the bank had been forced to foreclose.

If you lose money on a regular basis and refuse to take the actions necessary to maintain a sustainable cash flow, at some point in time your banker and creditors are going to close you down.

If, during a good economy, you don't fix the problems you created during a down economy, the next down economy will put you under. The up economy is like the middle of summer in Michigan: Prepare for the next down economy because, like rain, it is inevitably coming.

The IRS is more like a tornado. You know there will be tornadoes in the future. Being a small business owner is like living in the Oklahoma Panhandle. Tornados are far more likely in Oklahoma than Michigan, so there are tornado shelters. You, as a small business owner, need an IRS shelter because you are to the IRS what residents of Oklahoma are to tornadoes.

There is not a much more despicable organization in government than the U.S. Treasury, but it is there and is going to be there for the foreseeable future. Imagine a farmer standing outside looking at a storm front and screaming, “Go away tornado!” The potential for a good resolution is highly unlikely.

It’s the same with the IRS. The farmer should have a plan for dealing with tornadoes. You should have a plan for coping with the IRS. The IRS will come for you or your neighbor; we don't know who. The best plan is to be prepared.

Run your business as if you were going to be audited. Even if you are not audited, you will sleep better and you will have good records with which to manage your business.

Farmers repair and maintain their equipment over the winter. CPAs go to seminars and improve their knowledge and systems outside of tax season. Armies replenish supplies, plan and rebuild between battles. Athletic teams practice and refine skills between games.

What you do in between busy periods may be more important than what you do in a crisis. Vacations are important and should be taken. On the other hand, don't waste time when things are slow. Do the things you can to be more efficient during the rush period. The next tax season, like the next planting season, will, inevitably, happen.  

There is a saying in the investment business that failing to plan is planning to fail. And planning is not enough. You have to act. You are going to retire someday whether you like it or not. Sometimes the fortunes of life just don't go your way: You are going to be ill someday. You are going to be old someday. You may not live as long as you thought. Anybody want to argue that?

While you’re healthy, do everything you can to stay healthy but have a plan if you become ill. If you are young, enjoy your youth but set an amount aside for your elderly years. Hopefully, you will have elderly years. If not, be prepared for that eventuality.

Do what needs to be done before it becomes a crisis. I have a great example of this point facing me right now. I have grapes that are ripening. If I do not put up an electric fence, the raccoons will consume all of them within two nights. I know they are out there waiting.

Those lazy, ringed tailed, banjo-eyed tree rats have put no effort in trimming, fertilizing or caring for my crop. Slight regression — sounds like the government. Anyway, putting up the electric fence is an unpleasant job so I always put it off. If I procrastinate one day too long, those sleazy little scumbags are going to have a feast at my expense.

As much as I enjoy thinking of their pain at touching the fence, I still have to actually go out and put it up. If you hear of a retired CPA in Northern Michigan who was dragged out of his yard and eaten by enraged raccoons, you’ll know I put the fence up. Otherwise, I didn't put the fence up and they are feasting in preparation for their hibernation at my expense — which is exactly what I would have advised them to do.

Paul Hense is the retired president of local accounting firm Hense & Associates and the past chairman of the Small Business Association of Michigan.

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