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Unsure governments leads to business uncertainty

Five things you need to know about the new conservative stance

Uncertainty kills business. And it’s one of the reasons companies are very fiscally conservative at the moment. That conservative stance isn’t just a reaction to an economic downturn or to missed sales goals. In fact, a lot of companies are reporting their fourth quarter profits are actually up. How’d they do that? They got scared or at least cautious. When nobody knows what the government is going to do, businesses get conservative – on the employee front, on the balance sheet, and beyond.

One of the best things that the government can do is make itself exceedingly clear about the direction it’s going to take.

Whether it is going to raise taxes or lower taxes. Whether they’re going to impose regulations or not. I think it’s safe to say that taxes are going to go up. It’s almost mandatory, given the spending we see going on. Somebody’s going to pay for that, and that somebody is always the taxpayers, even if they think it’s the tax-paying businesses.

Despite the expectation of increased taxes, the lack of details is troubling for companies that will be paying them, as well as being subject to other legislated change.

Among other things, these five things companies need to know:

1. How will proposed legislation affect their business?

2.How will they have to change their policies?

3.How will they have to allocate bookings against fees and taxes?

4.How will those allocations affect business growth?

5.How will they afford their employees, their health care benefits, retirement packages, etc?

Today, such questions remain unanswered. There isn’t much clarity yet, so companies are holding back.

They’re cutting back, reducing their workforces and delaying projects. A lot of companies curtailed spending in the fourth quarter of 2009 to make their balance sheets look better and to bolster cash reserves they may need to grow going forward.

The doubt pushes companies to focus on fiscal issues instead of growth issues. Rather than being enthusiastic and optimistic about the future and putting money into related action, companies are more pessimistic and hesitant. They pull back. And that reluctance only makes matters appear worse to the rest of the world, because it raises the unemployment rate and can adversely affect other economic indicators.

But that’s just business being cautious.

As companies adopt a more fiscally prudent attitude, they’re willing to spend in areas that reinforce that attitude. Companies expect the new regulations pending, and they’re preparing for them.

They’re putting controls and automation in place, so they can handle increased reporting requirements without breaking the bank. However, spending on growth and expansion won’t pick up until companies know what pending legislation means to them.

For the business community, there’s nothing worse than uncertainty pertaining to the government. Take the health care bill in the U.S., for instance.

What’s in it? Only the people meeting behind closed doors know. Or the Financial Crisis Inquiry Commission. How’s that going to affect companies’ banking and credit relationships, and their ability to finance business going forward?

Nobody knows yet. And companies hold back a little bit more as a result.

Uncertainty causes us to hang. And that’s one of the biggest destructive forces in the economy.

Yes, it’s good for some businesses; it’s not necessarily good for the economy as a whole. Companies are waiting for clarity. They’re waiting for the certainty that fosters conviction to act decisively. With a known problem – and known consequences – companies can deal with it once and for all.

John H. Capobianco is president and CEO of Lumigent Technologies, Inc., a GRC business apps company specialising in driving down the cost of regulatory compliance.