Financial planning and strategizing during chaotic economic times is like white-water rafting without a paddle. As you bounce between rocks, holding tight and hoping your craft doesn’t spring a leak, you analyze your situation. You can’t see the end of the turbulence through the spray, and you have no way to steer. An adventurous risk-taker would find the ride exhilarating, while the meeker soul would suffer through every second. The experience is filtered through each person’s preconceptions and perceptions.

Individual filters also influence the interpretation of financial data. The electrical contractor who has paid for a professional business valuation is often shocked at the “undervaluing” of his company because sweat equity creates an emotional filter that distorts his perception of market value. The professional valuation expert works without such an emotional filter.

Fair share
Fair share is a concept that is subject to the same filtered interpretations as it relates to the manipulation of tax rates by elected officials. Judge Learned Hand advised citizens to follow the tax code and pay no more than the law required. You probably believe that your company already pays its fair share of taxes and fees. On the other hand, minimum wage earners or welfare recipients may feel that wealthy electrical contractors owe a larger share of their ill-gotten gains to the less fortunate.

If you voluntarily share some of your resources with the community, you claim the right to decide which causes to support and to what degree. Career bureaucrats who want to keep their jobs would prefer that you make your contribution through taxes or fees, which they would distribute as they see fit.

As an employer, you perceive the value of each person in your work force. The employees’ understanding of their own value may be quite different. You might be providing benefits they neither need nor want, incentives that fail to motivate, or you may be blithely ignoring potential cost savings because you are unaware of your filters. While you worry about a key employee who has reached maximum value and is due for a raise, he may wish for an early retirement package but fears an instant dismissal if he broaches the subject. While your trucks and computers have no feelings about how you treat them, your people do. This asset will provide feedback on its own filters, and you might be forced to revise your own as you receive new information.

How do you decide whether interest rates are at favorable levels? You would probably be delighted by a 12 percent rate on a certificate of deposit, but disappointed with the same interest rate on your mortgage. To analyze the effect of interest rates on your business, consider the volume of invested funds, the size of your debt load, and the gap between interest earned and interest paid. For example, if you owe $100,000 at 5 percent interest and have investments of $100,000 earning 8 percent interest, you are ahead by $3,000 overall. If you have $200,000 on deposit at 5 percent interest and $100,000 in loans at 12 percent, you are paying $2,000 more than you are earning. Your bank is constantly calculating the interest paid to depositors versus the interest earned on loans and hoping the earned interest is significantly more than interest paid to depositors.

Here’s another example of differing perceptions in play: air travelers may be annoyed buying extra quart bags for their carry-on liquids. Meanwhile, the manufacturers of those bags were calculating their share of profits on the millions of extra bags they sold as a result of this mandate. The inventors of those TSA-approved travel kits also have enjoyed a windfall.

Now, when company revenues grow, you and your stakeholders are pleased. Would you react differently if your profits began slipping? A business making 10 percent profit on $2 million of revenue might grow to $3 million the next year and earn only 5 percent. Profits fall from $200,000 the first year to $150,000 the next, and only you can decide whether that amount is acceptable. If you have recently married and are under pressure to create jobs for 10 of your new in-laws, it might be worth adding revenue and earning fewer dollars of profit to keep the peace at home. Just ensure you can explain that reasoning to your banker. Although lenders appreciate business growth, they will always ask why your net profit percentage is down when the year-end numbers are reported.

There are no easy, consistent interpretations of even the simplest financial terms. “Book value,” for example, means something different to a car salesman and a business broker. Develop an awareness of your own filters and those of others. Armed with that knowledge, you have a better chance of creating the most positive interpretations of your financial data, regardless of the circumstances.

NORBERG-JOHNSON is a former subcontractor and past president of two national construction associations. She may be reached at

About the Author

Denise Norberg-Johnson

Financial Columnist
Denise Norberg-Johnson is a former subcontractor and past president of two national construction associations. She may be reached at .

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