Summary
Business danger signs may be ignored or unnoticed, much like a frog in a pot of water on a stove. Yes, I am referring to the experiment involving a frog and a pot of hot water. If you put the frog in the pot and the water is boiling, he hops
out fast! But when you put the frog in a pot of room temperature water and then turn on the heat, it won’t notice the gradual temperature rise and fails to hop out. The gradual temperature rise prevents the frog from recognizing the danger signs.
Business danger signs may be ignored or unnoticed, much like a frog in a pot of water on a stove. Yes, I am referring to the experiment involving a frog and a pot of hot water. If you put the frog in the pot and the water is boiling, he hops 
out fast! But when you put the frog in a pot of room temperature water and then turn on the heat, it won’t notice the gradual temperature rise. It fails to hop out. The gradual temperature rise prevents the frog from recognizing the danger signs. (Okay, animal/amphibian/reptile lovers, I am sure you are cringing at that example, but it makes my point, so stay with me.)
When your business hits an acute crisis, you notice it, and you take action. Like the frog, you jump onto it and move to get out of danger. But how do you act when the changes that put your business in danger are gradual, steady, and small? Accumulating risk, threat, and damage occur slowly over time. Are you the frog in the pot, not noticing the rising temperature?
Regulatory and Legal Danger Signs
I’ve been writing focused articles on how to deal with the rising pressures on your businesses. These articles focused on changes in regulations (minimum wage, overtime, and other regulatory compliance issues). Still, I want to discuss danger signs in more general terms in this article, focusing on developing a process for monitoring, quantifying, and adapting your business to changes in the labor, financial, economic, and regulatory environments that affect how you operate.
Whether you are a small business or a large international corporation, situational awareness and long-term strategic thinking and planning must be integral to building and maintaining your business. If you are not up-to-date on the external factors that can and will impact your ability to do business, the days you will stay in business are numbered. As much as we may want to ignore the news, changes in regulations, and what competitors are doing, as well as the latest technology, we can’t afford to (feel the temperature of the water heating up?).
Mitigate Danger
It is costly to be reactive rather than proactive in addressing change. Businesses that wait until “they have to” deal with something usually spend more money on a solution than the business owner who is aware, takes time to understand what needs to be done, and identifies multiple approaches or alternatives to solving the problem. I have seen many businesses ignore changes that not only have real financial impacts but also legal consequences for non-compliance. For example, let’s say that sales tax rules and rates change mid-year in a business.
The business owners or managers that don’t monitor those changes (btw you usually get a sales and use tax change notice in the mail from the state(s) you do business in)—or worse, know about the changes but think they will deal with it later—too often find themselves on the hook for unpaid taxes, fines and penalties.
One recent client did not implement the changes in their sales process to charge sales tax on labor. They failed to collect an average of 7% sales tax on transactions from customers, and as a consequence, when we sat down to get them compliant and up to date, they had a huge tax bill that came straight out of their profits. To add insult to injury, they weren’t making a 7% profit on the sales, so they went from 5% profit to 2% loss on each sale. (The water is boiling!)
Take Steps Now
So, whether we like it or not, we have to:
- Understand what to monitor: municipal, county, state, and federal regulations related to taxes, reporting, hiring, and other relevant matters.
- Understand what changes are planned, scheduled, or have been retroactively (my favorite! How can you comply with something that was created after the fact?) implemented.
- Translate the changes into dollars and sense (yes, common sense, not “cents”).
- Identify alternatives for making the changes: will you need a tax expert, different accounting software, or to train staff members? What do you need to do to prepare for change proactively?
- Make a decision on which alternative maximizes your results and minimizes the costs.
- Develop an implementation plan.
- Work the plan.
Many businesses require assistance with these steps, particularly when multiple changes co-occur (such as minimum wage increases, changes in overtime rules, and adjustments to sales and use tax). The ability to accurately analyze and apply simultaneous changes and run scenarios to find the best solution for your business will often require developing financial models and forecasts to run what-if scenarios.
Model Example
Below is an example of a model I built to analyze the impact of the new overtime (OT) rule on labor costs and staffing plans for a California retail business. I developed different staffing plans. The second step in the process, after addressing the new OT rules, was to analyze the planned minimum wage increases. We examined the impacts of OT rules, planned minimum wage increases, the Affordable Care Act, and several other factors to develop the most effective economic model for a retail business operating in California.
Example OT Rules Analysis Model
If you feel overwhelmed when you think about developing a strategy for your business to deal with complex changes in regulations and other factors, then invest in working with someone who knows how to work with you on the analysis. Let them develop tools and systems that will enable you to stay compliant, profitable, and in business. Changes will continue to happen, and you can’t be the frog in the pot. You must be aware of what is happening around you and act before you no longer have options.