What are you building to weather the fiscal cliff? Noah had his arc. I suggest you build a hang glider. While the fiscal looms large in media consciousness, for most people, it isn’t as clear how tall the cliff is and what its effects will be. So I suggest that you take some time, if this is bothering you, and examine the impact of the various proposals being made and then determine what you can do to reduce your vulnerability.
We (GBQ) have been looking at the various proposals and pieces of legislation as well as relevant expiration dates that are approaching. Therefore, there is plenty of material available on three categories of information regarding the cliff, 1) What we know for sure, 2) what we think is likely, and 3) what we just can’t predict. I’m NOT, however, going to rehash that or drift into tax advice or prediction (feel free to breath a sigh of risk relief). Rather, I am going to look at the issue of preparation for 2013 and beyond. Early in the New Year, we’ll be hosting a workshop where you can meet a certified tax professional and we can work together on this problem if you’re interested.
So let’s look at how to face a problem that is not clearly defined. Most of the time, we plan for events. We plan to start a business, we plan to get funding, we plan to add talent, we plan to increase sales etc. These are all things we believe are going to happen in the future or at least have an impact upon. In the generally charmed life we lead in this country and at this time in history, this appears to be true. Major upsets have been rare.
The problem is, it doesn’t matter how rare they are if they are catastrophic enough. Therefore, the approach to planning I am encouraging you to consider is this: think in terms of outcomes. Rather than looking at the three categories of things we know or don’t know about the cliff, think in terms of the impacts those events could have on the business. For instance, if you think income taxes will rise, the outcome of that event, assuming that you are subject to the tax and that you have income to be taxed, is that all things being equal next year, you will have less cash at the end of the year than you would have if tax rates had not changed.
By grouping the events into their respective outcome groups, you can prepare for multiple events by preparing for a single outcome. This is not the same as preparing to avoid the event by, for instance, reducing your taxable income. One could argue that’s a valid strategy. I would argue you definitely want to proactively deal with problems by preventing them first, but that is not the focus of this article. Our focus here is on how to deal with the events that can’t be predicted now.
So as you begin working on your fiscal cliff hang glider, begin thinking about the range of issues it could create in your business. Then you can think in terms of actions you can take that would either make your business more robust, which is resistant to damage, or even antifragile, which means the business is helped by, what would have been, adverse events.
I’ll be writing about this more over the next 12 months and we’ll look at some specific cases. If you’re interested in getting involved in our fiscal cliff hang glider workshop, drop me a line and we’ll make sure you get an invitation.
In the meantime, an excellent book on the subject of uncertainty and risk was just released on November 27, 2012; Antifragile: Things That Gain from Disorder by Nassim Nicholas Taleb. This is an excellent read if you’re into Paleo, Mark Sisson, Family Fortunes, black swans, uncertainty, Harry Dent and a host of other topics about events we don’t see coming and how to win when they do come.