Industry Eye: Working with the unknown, the known and everything in between

This surprisingly perceptive comment by former United States Defence Secretary Donald Rumsfeld in 2002 has rapidly found its way into books of quotations, but it should not be readily dismissed as it can provide a snapshot of the business world we are now in – whether in town or country.

The "known knowns" include vast personal and national debts to repay; a less-than-trailed increase in taxes; savage cuts in public services, many long overdue; limited access to credit, unless you can provide excellent security; and a prolonged tough trading environment.

None of these are attractive prospects but at least they are known and we can plan with some certainty around them.

The "known unknowns", however, present a very substantial level of uncertainty when doing our planning.

They include: the real risk of an implosion in the Eurozone, which would seriously affect our national exports; the return of inflation; the risk of higher interest rates; a 'double dip' second dose of recession; cuts in employment in the public sector which employs up to one third of adults in parts of Yorkshire; uncertainty as to the outcome of a variety of new reviews and consultations; further tax changes in the next autumn Budget; a possible failure of the coalition and a further election; and the level of increase in growth in the economy.

Different businesses will react in different ways to this substantial uncertainty, but the prudent ones will factor these risks into their strategy and sail on with contingency plans in place which allow a rapid change of tack if there is a substantial political or economic wind shift. It would be unwise just to trust to luck.

Let us not even think about the "unknown unknowns", as they are just that, the other two are quite enough to contemplate by themselves.

The animal reaction to danger is "flight or fight", and the same can be applied to the business world. We can either run into a bunker, do nothing and hope it will all go away, or fight our way through what is a continuation of difficult and challenging times.

For some it is too late and we are already seeing a number of businesses fail who have staggered along so far. The banks are becoming tougher, the Revenue cannot afford to be as accommodating as it has been and the carnage in the public sector will affect businesses who contract with it and those who rely on it as their main source of income. However, they have been made to do painful things that should have been done a long time ago and they are now leaner and fitter.

An essential part of planning in the present environment is catering for the worst that could occur – you are ready for a known unknown confronting you.

A practical known unknown is the risk of customers or suppliers not paying debts. Making sure your contractual terms will give you the best shot to get your money is vital.

We are also going to see a higher incidence of spurious claims as tough times continue. React to these robustly, seek advice and consider early use of dispute resolution techniques like mediation

Raworths LLP is the sponsor of the Art Show at the Great Yorkshire Show.

CW 10/7/10