Uncertainty in the Accounting Field
Occasionally, we need to lift our heads up from the crush of daily work and look out to sea in case any tidal waves are coming our way. This article shows us there are a few rolling in right now.
Taking risks is an inevitable part of being a small business owner, and the most successful entrepreneurs will manage their business risks skillfully. This year, the level of uncertainty in a number of areas is making our risk management decisions a lot harder. As we head into the final months of 2012, a few of the more-commonly cited uncertainties that impact our profession include:
- A huge number of expiring tax provisions
- Rapid technological change in tax and accounting systems and tools
- A relatively new need to market and to do so in unfamiliar media
- Staffing and talent uncertainties as a generation of Boomers exits
- The state of the economy and unemployment
- A teetering-on-bankruptcy federal deficit
- The impact of globalization on a number of areas
Since most accounting professionals are risk-averse to begin with, this presents an interesting conundrum in our industry. The good news is where there are risks, there are tremendous opportunities to build wealth.
The number of disruptive events that could negatively impact our businesses is quite large, but more impactful is how quickly the damage can occur. Blockbuster’s demise, in part by Netflix, is one example of how quickly business models can be rendered obsolete. Encyclopedias, the Yellow Pages and printed books are among the numerous products that are or have already been doomed to dinosaur fate.
In accounting, the abacus and paper ledgers are behind us. Soon to follow:
- Paper checks and invoices
- Filing cabinets
- Duplicate data entry
- The unconnected PC
Clients are asking for:
- Accounting on their iPad and Android
- Anywhere, anytime accounting access
- Explanations in terms they can understand
- Workflow efficiencies and lower costs
- Experts and specialists that can save and make them money
When clients ask for something we don’t currently do or offer, it can be a huge revenue opportunity. That’s how I develop my services – I listen to what my clients need – then I adapt.
With so much uncertainty, most of us can only juggle a limited number of balls before several get dropped. Without a solid process to assess these risks and the impact they can have on our business, we may tend to gravitate toward the ones we’re most comfortable dealing with or the ones we’ve seen before.
For example, by now most of us are used to last-minute tax changes from Congress, and when this one issue takes up all our attention to the exclusion of the others, this is where we can become overwhelmed, sidetracked, and susceptible to blind spots. When are the other, less comfortable uncertainties going to get our attention? More importantly, which uncertainties lead to the highest risk – and most profitable opportunity – for our businesses?
Large businesses have the luxury of a board of directors and expert advisors who can help them mitigate potential threats to their business’s survival. Most small companies’ risk management activities are not formalized, but there’s no reason why they can’t be. A simple three-step process will help accounting professionals manage all of this risk and uncertainty:
- Name – make a list of areas where industry leaders as well as your gut are telling you to worry.
- Estimate – what is the potential impact on your business of the most likely scenario?
- Take action – what cost-effective actions can you take to mitigate your risk?
Let’s take technological changes as an example.
- Name it – Cloud technology
- Estimate it – Possible 20 percent revenue loss over the next 12 months – competition gained price efficiencies and customers migrated
- Take action – retrain one staff member, move three clients to QuickBooks® Online, and create a new service based on the new technology solution. Costs to change are lower than potential losses.
Go through the NET process for each area of uncertainty to analyze its impact on your business and possible solutions.
Learning to be comfortable with uncertainty takes practice and is a skill called resilience that you can develop. As accountants, I believe we are more susceptible to “negative thinking” than most other professionals. After all, we spend all day looking for (and correcting) other people’s mistakes, we’re subject to highly stressful hard government deadlines with huge penalties, and our work is excruciatingly detail-oriented, requiring no less than constant perfection.
While the NET process above can help you with external threats to your business, resilience skills can help us deal with the internal or emotional side of our business. This includes when we lose a client, when we need to make a price increase, when we make a mistake, when we have a deadline that’s tight, and when it’s busy season, to name a few.
I highly recommend a book called The Resilience Factor: 7 Keys to Finding Your Inner Strength and Overcoming Life’s Hurdles By Karen Reivich and Andrew Shatte if you’re curious about this topic of resilience.
Practicing NET and learning resilience are two ways we can get more comfortable with uncertaintly so we can thrive in our business and help our clients succeed as well.
Do You Love Being in Control? Here’s Why
It’s natural to dislike not knowing. We dislike not knowing because it feels like we are out of control and our brain hates that feeling because it feels threatening to our survival.
Brain science studies show our left brain loves being in charge of everything, even to the point of making it up. In one experiment, Michael Gazzaniga, professor of Psychology at University of California at Santa Barbara, showed subjects a photo of a chicken claw to only the left side of the brain (which controls speech) and a snow scene to the right side of the brain (which cannot control speech), using special equipment. The subjects were to match cards that were similar.
A typical correct response was for the subject to point at a chicken with his right hand (controlled by the left side of the brain which saw the chicken claw) and a shovel with his left hand (controlled by the right side of the brain which saw the snow scene).
When Dr. Gazzaniga asked why the subject chose the cards, he replied using his speech center which is in the left side of the brain and never “saw” the snow scene, “The chicken claw goes with the chicken and you need a shovel to clean out the chicken shed.” In fact, the subject’s left brain made up an answer to justify why the left hand was pointing at the shovel (source: Gazzaniga, Michael, “Organization of the Human Brain,” Science, Sept., 1989, pp. 947-956).
We love to be in control so much that our brain makes stuff up that’s not true!