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THREE TYPES OF UNINTENDED CONSEQUECES

Kim Radok25 May 2021

How and why do the consequences of our decisions differ so often from the sought-after benefits? If we look at the underpinning thoughts which have led to the decisions, we generally find that they were based on the current fads in business, plus a failure to appreciate the value of sound and proven business principles.

When we make a business decision, there is the concept the result will lead to the intended consequence which will endorse the decision made. Alternatively, and unfortunately, too often there may also be an unexpected negative, or entirely different consequence not anticipated.

When we talk about the unintended consequences of our decisions however, the general thought is that they will be negative in nature. The reality is that not every consequence will be negative.

Here are three types of consequences.

Perverse result

A typical example might be taking on debt instead of building up cash reserves for business growth or expansion.

If there is one thing the current pandemic crises has taught us all; debt is often a business killer. Many businesspeople however are still thinking about the advantages of cheap debt to grow their business. The primary arguments against cash in the bank are that it is not earning anything because of low or nil interest rates and is losing value as a result.

The problem with debt however, is that your lender has a say in how you run your business. In addition, a cheap interest rate today, or a price reduction for buying now, may become more expensive in the future. For instance, if your revenue stream is reduced, or interest rates increase, your borrowing costs also increase. Any benefit of cheap interest rates therefore is soon lost.

Meanwhile cash building up in your bank account(s), gives you real power and allows you to control your business unencumbered by the requirements of others. In addition, there is nothing like buying a $100 asset for a 20-50 per cent discount to add value to your business because you can pay for it in cash.

You must also realise, the people advocating that cash is worthless, want your cash in one form or another for their own benefit. Never also forget, that no matter how attractive their argument sounds, there are major benefits in having cash. These benefits include the freedom to operate your business the way you want to, and the power you have over a desperate seller because you can pay cash.

An unexpected problem

Retrenching a key employee or employees from the business, without recognising that the employee or employees were a “key” employee(s) in the business, is a costly problem. For instance, outsourcing the in-house accounts receivable department to an overseas third-party provider thinking this was a cheaper option.

Too late, management realises the people who understood their customers and were focused on the importance of maintaining customer service and cashflow have left the business. Meanwhile the current cashflow is disrupted as the new employee(s) learns your business’s operations and by not following up in the prescribed manner already established you’re your customer.

Worse still, is if your former employees end up with your competitor(s). There will be further negative consequences as they already know the key factors about your customers and their key people.

Unexpected benefit

Currently, many B2B credit providers have problems with slow payers and bad debts. Operating successfully means doing business profitably over the long term. Many businesses however, cannot identify a slow payer or bad debtor from a profitable customer.

The benefit in encouraging slow payers and bad debtors to go elsewhere, even in these tough times, is manyfold. First, if these customers weren’t profitable for your business, they are most likely to be unprofitable for your competitors.

Second, all the work required to set up the new account(s) and deal with the problems you had already experienced, will distract their employees from profitable customers.

Meanwhile, you will have more time to look after your profitable customers to increase sales and profits, plus seek new customers.

In a world where “more” is deemed to be better than quality, it is sobering thought to realise that “more” is not always the answer to greater profits and a better business.

In Conclusion

There are many examples of business decisions which have resulted in unintended consequences. Furthermore, with all that is going on around us today, we can never be sure that consequences of our business decisions will go the way we want.

We can however reduce unexpected negative consequences by more careful planning when making our decisions. Your planning should accept that many of the current business fads do not always stand the test of time. The value of sound and proven business principles, have stood the test of time and irrespective of changing economic environments.

Want to know more, contact Kim at kim@creditmatters.com.au, or telephone (03) 9886 6707, A/H (03) 9802 0608, mobile 0411 649 261, or have a look at what we offer via our website at www.creditmatters.com.au

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