How to make the best decisions: A counterintuitive approach

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A client texted this morning and asked if we could have a quick call… 

They have an opportunity to purchase a piece of equipment for their business and wanted my advice. 

An overview of the decision to be made:

  • The equipment is used and in great condition as verified by an objective third party.
  • It would save them about $7,000 over buying new and it was on their list for this year.
  • They’re currently cash-strapped due to aged accounts receivable from new clients (we’ve remedied this for the future) and they’re going to owe around $20,000 in taxes.
  • They’re not in a position to take on debt.
  • The equipment is something that will be revenue generating almost immediately.
  • It will take about $1,000 to have the equipment fully operational.

They asked for my thoughts on whether or not to buy.

Rather than answer, I asked this counter-intuitive question“If you purchase, what’s the worst case scenario?” and then we brainstormed:

  • Outstanding accounts receivable never gets paid and they’re out over $60,000.
  • No new clients sign up in Q1 (typically their slowest season) so they’re going to have to live off existing bank account balance.
  • The money doesn’t come in to pay 2023 taxes.
  • The new equipment doesn’t bring in as much revenue as anticipated. 

We went through each of the above and came up with a realistic (key word!) plan of what to do if any/all of them happen.

Once there was an actionable/doable plan for the worst case scenario, anything better than “worst case” is totally doable. 

End result? Client is working up a few numbers and will likely be purchasing the equipment. 

When next you’re faced with a decision, in addition to the best case scenario, work out the worst case and see if it makes sense in that scenario.

Photo by Ketut Subiyanto