A new and rising cybersecurity threat: Vulnerabilities from artificial intelligence as companies increasingly adopt generative AI, the tech behind ChatGPT and many other chatbots. 

AI threats join a slew of other cyber risks. Though new AI security risks are known there are no surefire ways to address them. One big issue is the massive amounts of data needed to train complex AI models so users can create text, code, images, video, data analyses, charts, etc., by writing questions or prompts in plain English. 

The AI chatbots can leak company info in a data breach. Sensitive company info is used for internal AI chatbots, including financial data, customer info, product research and legal files. Publicly available AI chatbots may pose more risk because now an outside party controls company data. 

Hackers can even trick the AI model to get it to leak sensitive data with clever phrasing or repeated questions…a “prompt injection attack”, even if there are guardrails in place. Sources of data, programming code, company secrets, etc., are at risk. 

Cyber pros are not confident in the current security of generative AI tools — both internal company apps and external ones from Google, ChatGPT and others. Some of the top recommendations for securing AI tools:

• Vet vendors closely.
• Have a clear policy on generative AI, including what apps are approved and in use, who is using them and what data are involved.
• Consider blocking certain outside apps.
• Vendors such as Microsoft, Forcepoint and Palo Alto Networks can scan AI models for security risks and track sensitive data and employee use.

It’s a fast-growing area...

Meanwhile, hackers are weaponizing emerging AI tools for cyberattacks, such as creating malicious software or sophisticated email phishing operations. Criminals can do this without technical know-how — just ask an AI chatbot for help. 

Other trends to watch:

• An increase in supply chain attacks, where hackers target third-party software vendors and regular suppliers to steal the info they hold. 
• New legal liability for security leaders related to SEC regulations and lawsuits. More companies are extending directors' and officers' insurance to security execs.
• Companies spending more to battle deepfakes — AI-manipulated media that put executives or customers at risk. Defensive tools include Reality Defender, a deepfake detection system.
• Ransomware remains a big problem, with hackers trying to lock down data and extort a payment. Attackers are becoming more evasive and persistent, too. 

Businesses should continue to emphasize tried-and-true best practices — patching software regularly, two-factor authentication, employee security training, incident response plans, etc. Plus, they should always prioritize security when adopting new AI tools.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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Drawing from these experiences, this article explores the five biggest reasons companies go bankrupt and provides insights into the lessons learned from these case studies.

1. Poor financial management

Poor financial management is one of the most prevalent reasons companies go bankrupt. This includes inadequate cash flow management, excessive debt and lack of financial planning.

Inadequate cash flow management. Cash flow is essential for day-to-day operations. Companies that fail to manage their cash flow effectively can quickly find themselves in financial trouble. For instance, one of our clients faced significant cash flow issues due to seasonal fluctuations in revenue. Without a robust cash flow management strategy, they struggled to cover their operational expenses during off-peak seasons.

Excessive debt. High levels of debt can be a burden, particularly if the company’s revenue projections fall short. This was a critical issue for another client of ours, which had accumulated substantial debt from its ambitious expansion plans. The debt burden became unsustainable when the expected increase in occupancy and revenue did not materialize.

Lack of financial planning. Without a comprehensive financial plan, businesses may fail to allocate resources efficiently, invest in growth opportunities and respond to market changes. Both the clients I mentioned above lacked detailed financial planning, which contributed to their financial instability.

2. Market changes and competition

Market dynamics are constantly evolving, and companies that fail to adapt can find themselves at a disadvantage. Increased competition, changing consumer preferences and disruptive technologies can all contribute to a company’s downfall.

Increased competition. New entrants or aggressive strategies from existing competitors can erode market share and profitability. One resort client faced intense competition from newer, more modern resorts in the area. Their inability to differentiate themselves and offer competitive amenities led to a decline in occupancy rates.

Changing consumer preferences. Consumer tastes and preferences can shift rapidly, impacting demand for products or services. For example, a hotel client struggled to attract younger travelers who preferred boutique hotels and vacation rental accommodations over traditional hotel stays. The client's failure to adapt to these changing preferences resulted in declining revenues.

3. Ineffective leadership and management

Leadership is crucial in steering a company through challenges and toward growth. Ineffective leadership can lead to poor decision-making, low employee morale and strategic missteps.

Poor decision-making. Leaders who lack the necessary experience or skills may make decisions that adversely impact the company. One client made several poor strategic decisions, including overexpansion without adequate market research and financial backing. These decisions stretched their resources thin and contributed to their financial troubles.

Low employee morale. A demotivated workforce can lead to decreased productivity, higher turnover and a negative company culture. For one client, low employee morale was a significant issue due to a lack of clear direction and support from management. This impacted the quality of service and guest satisfaction, further exacerbating their financial problems.

Strategic missteps, Strategic planning is essential for long-term success. Companies that lack a clear strategy or fail to execute their strategy effectively may struggle to achieve their goals. Several clients have lacked coherent strategies for growth and customer retention, leading to operational inefficiencies and financial strain.

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

4. Economic downturns

External economic factors can have a profound impact on businesses. Economic recessions, fluctuations in currency exchange rates and changes in interest rates can all contribute to financial distress.

Economic recessions. During economic downturns, consumer spending typically decreases, affecting revenue streams. Our resort client was particularly vulnerable to economic recessions, as discretionary spending on travel and leisure declined. This resulted in lower occupancy rates and revenue.

Fluctuations in currency exchange rates. For companies involved in international trade, currency exchange rate volatility can impact profitability. It can be a significant risk for many businesses with international operations.

Changes in interest rates. Rising interest rates can increase the cost of borrowing, affecting companies with high debt levels. One client faced increased interest payments on their substantial debt, which further strained their financial resources.

5. Legal issues and compliance failures

Legal challenges and compliance failures can drain resources and damage a company’s reputation. This includes lawsuits, regulatory fines and failure to adhere to industry standards.

Lawsuits. Litigation can be costly and time-consuming. Two clients faced legal challenges related to labor disputes and contract issues. These lawsuits diverted management’s attention and financial resources away from core operations.

Regulatory fines. Noncompliance with regulatory requirements can result in substantial fines and operational disruptions. While not a significant issue for the case studies discussed, regulatory compliance remains a critical concern for many businesses.

Failure to adhere to industry standards. Adhering to industry standards is crucial for maintaining customer trust and operational efficiency. Companies that cut corners or ignore these standards risk damaging their reputation and facing operational setbacks. Two of our clients struggled with maintaining industry standards, impacting their customer satisfaction and loyalty.

Conclusion

Understanding common reasons why companies go bankrupt can help businesses avoid these pitfalls and build a foundation for long-term success. Poor financial management, market changes and competition, ineffective leadership, economic downturns and legal issues are significant factors that can lead to bankruptcy. It is clear that proactive planning, effective leadership and strategic adaptability are essential for navigating these challenges. By addressing these critical areas, businesses can improve their resilience and increase their chances of success in a competitive market.

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The rise of fintech investments

In recent years, there has been a significant increase in fintech investments, fueled by the potential of AI and Agile practices to transform financial services. The global market for AI in fintech is currently just over $44 billion and forecast to reach almost $51 billion in 2029.

The global financial services sector holds a significant weight in the S&P 500, with financials accounting for 13.12% of the index, as of April. Major players such as JPMorgan Chase, Mastercard and Berkshire Hathaway illustrate the sector's substantial market influence. McKinsey's analysis reveals that between 2017 and 2022, payment providers and investment banks significantly increased their earnings per share, underscoring the value creation and total return to shareholders in the fintech space.

Financial institutions are investing heavily in AI to improve CX and streamline operations. These innovations include digital payments, automated billing and seamless CRM integration.

Leveraging AI for enhanced CX

AI is a key component of modern fintech strategy, allowing financial institutions to provide tailored and efficient services. According to McKinsey, "AI high performers," organizations that derive significant value from AI, are integrating AI across various business functions, including product development and risk management.

AI applications in fintech include chatbots, biometric verification and automated self-service portals, all aimed at elevating customer experience. For example, AI-driven chatbots provide 24/7 support, resolving simple queries instantly and routing complex issues to human agents. This enhances CX and also boosts operational efficiency.

Driving transformation with Agile practices

Agile methodologies are critical in enabling financial institutions to respond swiftly to market changes and customer needs. By adopting Agile practices such as Scrum, Kanban and the Scaled Agile Framework (SAFe), banks can deliver incrementally and iteratively, which accelerates the product development life cycle. This is particularly effective in large-scale enterprise transformations.

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

How to pursue Agile transformation

1. Assess your organization's Agile maturity. Conduct regular assessments to identify gaps in Agile practices. Consider evaluation factors such as responsiveness to change, Agile tools/practices followed and iterative delivery.  

2. Create Agile coaching and training programs. Implement tailored coaching to upskill your teams in frameworks such as SAFe, Scrum and the Spotify model. At TCS, we designed Living Agile, a work methodology to help employees embrace Agile as a lifestyle. This approach involves short, experiential mini-projects that can last up to three days. Agile coaches help groups of learners break down real-world problems and work in sprints as Scrum teams to achieve their goals.

3. Pilot your program. Identify pilot teams to implement Agile practices and then scale programs across your enterprise.

4. Measure your efforts. To gauge the effectiveness of your efforts, establish KPIs to measure the success of Agile initiatives. These may include mean time to recovery, mean time to market, customer satisfaction scores, user engagement and employee engagement, and flow efficiency.

Creating an Agile center of excellence

An Agile center of excellence (CoE) plays a crucial role in transforming teams to an Agile way of working, focusing on enhancing customer satisfaction and employee experience. Creating a CoE can help guide your teams and projects.

In my own experience, establishing a CoE in TCS Guadalajara has been instrumental. We focused on empowering our workforce, work centers and services to enable agility. The CoE improved our organizational efficiency and sped time to market. We delivered 80% of business requirements at 20% less cost, with high customer satisfaction.

Benefits of investing in CX

Investing in customer experience has various advantages, including the potential for enhanced customer loyalty, more revenue and a stronger competitive position. According to McKinsey, banks that prioritize CX transformation may find improved customer lifetime revenue and increased upsell and cross-sell potential. Furthermore, Agile and AI-driven CX strategies allow banks to anticipate consumer demands and provide personalized solutions.

The global financial services sector is expected to continue growing from emerging markets such as India, which is projected to grow 6.3% in 2024.

Focusing on CX can help financial institutions maintain a competitive edge in this evolving landscape.

Integrating embedded finance

Embedded finance integrates financial services such as payments, lending and insurance into non-financial platforms. By embedding financial services directly into platforms consumers use daily, such as retail apps and online marketplaces, businesses can offer seamless and personalized financial services elevating CX and making financial services more accessible and efficient. It drives significant value for both consumers and businesses, ultimately leading to increased revenue and stronger customer relationships.

Challenges and future outlook

While the benefits of integrating AI, Agile methodologies and embedded finance are clear, financial institutions face challenges in scaling AI and Agile initiatives. Key issues include data security, regulatory compliance and the need for robust infrastructure to support these advanced technologies. 

AI and Agile methodologies also pose a challenge in maintaining the human touch essential to client relationships in financial services. According to Deloitte, "The most successful CX leaders will likely be those who can use AI to enhance a human-centered customer experience." This involves equipping client-facing professionals with data to provide more human interactions, personalizing service interactions and being transparent with clients about AI use.

Despite these challenges, the future of financial services will be shaped by the integration of AI and Agile practices, driving unprecedented levels of innovation and customer satisfaction. As digital transformation continues to evolve, AI and Agile methodologies will remain at the forefront of strategic priorities for financial services leaders in 2024 and beyond, enabling them to meet evolving customer expectations and maintain a competitive edge in the market.

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His advice touched a nerve. Many readers reached out to me to say something to the effect of, “The idea of buying a business never occurred to me.”

Hanford, Calif., business attorney Ron P. Jones, who has been a friend of this column for many years, sent a list of important “due diligence questions that anyone thinking of buying a business must have answered. Why not run these by Tolley?” he suggested.

I did, and he was happy to answer Ron’s questions. He began with this cautionary note: Be curious, but don’t let the naysayers frighten you away.

“When buying an established business or going out on your own,” he said, “it is important to be curious and get answers to tough questions. However, when you repeatedly hear, ‘Yes, but what about these things? Did you think about these issues?’ do not let yourself become frozen with fear. Yes, there are many valid objections, but too much doubt — and a failure to realize that every business will encounter problems — can wreck motivation and creativity. So, use your common sense when told, ‘No! This isn’t a good idea!’ Perhaps it is a good idea, so obtain advice from several, knowledgeable sources and be alert to those who might be jealous of your efforts to grow.”

Tolley shares more insights

Here are the other questions Tolley answered:

How much knowledge and experience do I need in order to qualify for a Small Business Administration (SBA) loan to buy or start a business?

Tolley: You do not have to know everything. If you apply for an SBA loan, they want some relatable experience, but if you are buying a plumbing company, you don’t have to be a plumber. You do need some experience in management, with the trades, something relevant where the SBA will feel comfortable issuing a loan.

Also, this would be satisfied by elevating someone currently employed by that business to management so the SBA sees a person with experience in charge of the operational side of the business.

Should I be concerned about existing competition or new competitors coming into town?

Tolley: Absolutely! These questions are an important part of the vetting process where you are examining the business and its possible liabilities, including new competitors.

A public records search on the location is critical. For example, if you buy a restaurant, is your city looking into ripping up the road to lay new water and sewer pipes, which would prevent access and could destroy your business?

Is a labor union involved? Do they have any say in an acquisition? Is there a franchise agreement — that the seller hasn’t looked at for years — where a corporation requires it to be offered it to them first?

This is why business buyers and sellers never should do this on their own!

How do I find out where to order supplies, parts, inventory and like items and whether the costs vary over time or based on the time of year? Is there someone who can help ensure I’m not taken advantage of by vendors?

Tolley: If done correctly in the due diligence process, not only will you get that information from the sellers, but they should remain with the business for six to twelve months for that very purpose. When a finance company puts up the funds, typically they require sellers to stay for at least six months.

What financials should I review when buying a business? Should I see audited reports, or would the seller’s “chicken scratches” be enough?

Tolley: There are several types of financials that should be reviewed. Some are created by the business owner, also known as chicken scratches, as well as:

• Professionally compiled financials
• Financials adjusted from the seller’s perspective (add-backs, credits, debits) to get a more accurate picture
• Analyses of price, value and worth

Too often, buyers focus on the price of an acquisition, rather than the business’ value or worth.

This is where the concept of goodwill enters into the equation, which can be manipulated to distort the selling price. Price, value and worth are so different that a business that is losing money on paper and priced at next to nothing could be worth a small fortune to the right buyer, especially when its particular inventory has great value in itself.

A business broker can help negotiate a much lower sale price if they are aware of how a buyer could use this inventory.

Combating social media insta-experts

Tolley is deeply concerned about “insta-experts” who appear on social media and appeal to people who are desperate to get into business. Some “sell often plain worthless guides and business plans — for thousands of dollars — which lead to horrible financial carnage and families on the rocks.”

To combat this, his organization is holding eight-hour, free seminars around the country, where participants can learn how mergers and acquisitions work and what potential business buyers need to know before investing in a business. For more information, visit joshtolley.com or acquisitionalwealth.com.

If his seminars come to my town, I’ll be in the first row.

Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.

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Armstrong herself became a widow in 2023, and when I interviewed several of my women friends who had become widowed in the past few years, all three seconded her advice. 

“If you really want to do a good thing for yourself, make a list ahead of time, keep it one place and take it out once in a while to add to it,” says my friend Elinor, whose husband, Walter, died in 2022. “That would have made things easier for me.”

In addition to financial information, Elinor recommends keeping a record of big-ticket household items: “When does the roof have to be replaced? How old are the appliances? What’s the contact info for the plumber and the electrician?” 

Access to passwords is also a “huge issue,” says my friend Susan. When her techie husband, John, died unexpectedly in 2018, she was shut out of his computer and all his Apple devices. “It took me close to a year and a half to resolve all the electronic stuff,” says Susan. “A lot I had to give up on.” 

Because Elinor had access to passwords for her husband’s e-mail and other accounts, she kept them open for at least six months and was able to monitor them for notices of things she needed to take care of. “When all I was getting was junk, I knew I had done my job,” she says.

My friend Lorna urges couples to think seriously about housing options as they age. She and her husband, Peter, who suffered from ALS, had sold their home and moved to a continuing care retirement community. But when Peter died shortly after they moved in 2019, a CCRC wasn’t suitable for Lorna. “It took me four years to come up with a place I can think of as home,” says Lorna. She eventually purchased a house that the previous owner had outfitted to age in place. 

Susan regrets that she and her husband didn’t talk about funeral arrangements. John served as a Green Beret and had bought a burial plot in a military cemetery, but he had never discussed the service he wanted. When the time came, says Susan, “the choices had to be solely mine.” 

All three of my friends have found it beneficial to work with financial advisers — and they prefer to work with them in person. After about a year, Lorna switched from her husband’s adviser to a new one because “I wanted someone who would call me back.” 

Armstrong, who is founder and CEO emeritus of her own financial advisory firm, is sympathetic on both counts. “Any new relationship with an adviser should be personal,” she says. “A widow should say that up front and ask whether the adviser would be comfortable doing that.” (Search for an adviser through the National Association of Personal Financial Advisors.) 

Advisers can also be helpful for sorting out thorny tax issues, such as your new filing status, any medical expenses for the deceased spouse and rules for inherited IRAs, which are “ridiculously complex,” says David Silversmith, senior tax manager with Eisner Advisory Group in Melville, N.Y. 

On a personal note, Susan advises giving yourself at least two years to adjust to your new situation. “I think you have to go through a cycle of holidays first,” she says. As time goes on, “you feel the loss as an ache rather than a sword through the heart.”

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The pandemic galvanized federal support for broadband. Now get ready for a tidal wave of spending on telecom gear. The biggest federal effort ever is underway to connect all Americans to high-speed broadband. There’s $42.5 billion to deploy web service, mostly fiber-optic networks, to locations lacking it. 2021’s bipartisan infrastructure law funded the plan. Here’s an early outlook on the huge project.

About 8 million locations lack broadband — web speeds of 100 megabits per second. The problem is concentrated in the most rural areas. All 50 states are moving with urgency now to finish up plans to tap fed money from BEAD — the Broadband Equity, Access and Deployment Program. 19 states have more than $1 billion each to fund new network build-outs. Texas has the most, with $3.3 billion, then California ($1.9B), Missouri ($1.7B), Michigan ($1.5B) and North Carolina ($1.5B). The least is Delaware ($0.1B).

Major web providers are eager to gain users, at least in targeted areas. AT&T, Charter/Spectrum, Comcast/Xfinity, Verizon, Cox, CenturyLink, etc., will likely take part. All are eager to gain users who could become long-term customers, though they are wary of building expensive networks that won’t reliably return a profit. Providers must fund at least 25% of the project, more in some places. Stringing fiber cable on poles or trenching it to remote spots and through tough terrain can be very expensive. Costs of materials and labor have gone up in recent years and permitting delays, which are a real concern, are costly. Still, the once-in-a-lifetime network subsidies will be hard to pass up.

Local, small providers will be relied on in many rural spots. Many will understand the location, workforce and demands of building a local network. However, a risk is that smaller providers overpromise to gain funding and then fail to deliver over the long haul. One federal pandemic broadband program for rural areas now has over $2 billion in default, out of a total pool of $9 billion, after some providers realized the proposed business models wouldn’t work. The Federal Communications Commission is still figuring out what to do about the failed projects.

Building for BEAD projects starts in 2026 when most of the money starts flowing. Fiber is strongly prioritized, but there’ll be some wireless projects, including satellite. But those wireless options will be the exception, not the rule. 

Meanwhile, sellers of fiber-optic cable and broadband electronics will cash in on historic demand. Because of “Buy America” rules for fiber and certain equipment, vendors such as Nokia and Corning recently expanded U.S. manufacturing capacity. Other vendors to benefit: CommScope, Vecima Networks, Adtran, Superior Essex and PPC Broadband.

States see huge potential for economic development, especially in rural areas, to lure remote workers, keep young residents from moving and create jobs. Farms and other remote businesses could potentially benefit from new, faster networks that cross their paths. The funding can connect libraries, community centers, hospitals and similar locations. 

Perhaps the biggest challenge is a looming workforce shortage across the U.S. Jobs in high demand will include land surveyors, fiber technicians, project managers, telecom engineers, electricians, network operators, foremen and laborers. The broadband projects will compete for workers with other major infrastructure works, from roads and bridges to semiconductor plants and energy projects.

There will be efforts by states, companies and industry groups to get the word about jobs paying from $60,000 to $100,000-plus, most jobs not requiring a college degree. Louisiana, for example, aims for 3,000 state residents to receive broadband-related certifications by 2025 and another 2,000 by 2027. Corning and AT&T have an expansive program to train fiber optic technicians. Broadband Nation was launched by industry groups to highlight available telecom jobs. But finding tens of thousands of trained or certified workers will be a constant issue. 

Note that getting unconnected folks online is about more than just building networks. “Deployment is one part of it, but it's not the biggest part of it," says Jessica Dine, a former policy analyst at the Information Technology and Innovation Foundation (ITIF). Besides affordability issues, non-internet users often lack interest or digital know-how. States are planning digital literacy programs that educate residents about the web. 

The unprecedented program won’t escape delays and even some failures. The federal agency tasked with overseeing the program, the National Telecommunications and Information Administration (NTIA), is already working to streamline permitting, a big potential roadblock that risks extending timelines. And for sustained success, Congress also needs to reform federal programs that help subsidize internet costs to low-income households and high-cost areas.

Still, with enough money to meet connection goals by 2030 or so, the promise remains huge for likely the last major effort of its kind.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

Instead of looking ahead to the next quarter or next year, let’s explore how fast the economy can grow in the long run, this decade and beyond. Over a long stretch of time, small jiggles in GDP growth can spell the difference between broad prosperity and hardship, or between the government being able to pay its debt and getting overwhelmed by red ink.  This special report takes a look at the factors that govern the economy’s potential, and what could alter them. 

Imagine an economic speed limit: The fastest pace growth can maintain without sparking inflation — the sweet spot where jobs are abundant, incomes rise, but price increases stay modest. It’s the benign economic climate the Federal Reserve is forever seeking: Low unemployment. Stable, low inflation. 

The speed limit has two basic pieces: How fast the workforce expands. And how quickly worker productivity grows. We are glossing over a lot. But the simple formula for growth is more workers and more output per worker. Economies with rapidly growing populations can boost GDP by simple increases in the number of new workers. Aging nations can keep GDP rising by finding ways to make workers more productive. Ideally, you have both sources of growth. 

Of the two, workforce growth is simpler to project. We know the number of babies being born each year, average lifespans, average retirement ages, etc. Aside from the hiring surge as the economy reopened from COVID-19, the labor pool in the U.S. is rising about 0.5% per year. It’s been slowing for a long time now. 

In the decade prior to the pandemic, the rate was 0.7%. By the end of this decade, it’s likely to fall to 0.4% per year. By 2045: About 0.2%. Note that the current downtrend includes immigration, both legal and illegal. Future immigration policies could nudge total workforce growth up or down a bit. But the downturn in the domestic birthrate appears entrenched, no matter what. 

Productivity gains are trickier to forecast. But there, the outlook is better. Output per worker had been rising by 1.5% annually for a decade and a half. Lately, it’s drifted higher. The scramble to adopt remote work and sell more goods via the internet during and after the pandemic likely led to efficiency pickups that are still playing out. For instance, replacing some in-person meetings that used to entail time-consuming travel or commutes with videoconferences. Or helping brick-and-mortar stores serve as fulfillment centers for online sales. 

Pushing productivity up is key to lifting long-run GDP growth potential from its current 2% to a healthier level since the labor force is unlikely to grow by more than a tiny fraction of a percent after the post-COVID hiring surge ebbs. 

In earlier times, productivity boosts often came from greater education of the workforce — more people going to college or vocational training programs. Going forward, technological progress is likely to be more important, since education levels in the U.S. are already fairly high. Previously, efficiency gains related to the proliferation of the internet in the 1990s goosed productivity gains, first among manufacturers and then across the services economy in the 2000s.

Economy growth boosters

Artificial intelligence has the potential to be this decade’s internet: A huge technical advance that makes workers far more productive and lifts the economy’s speed limit. While there is undoubtedly lots of hype about AI and how it’s going to transform everything, it does look like a candidate for enabling genuine, far-reaching efficiency gains across many jobs and sectors. 

It’ll take time to play out. Remember, the revolution in digital computing took about half a century from the earliest machines to widespread consumer use. But AI is already ramping up business spending on AI-specific chips for servers and personal devices, as tech companies rush to prepare for a flood of future AI applications. Purchases of the graphical processing units and other gear needed to run AI programs could push up growth in the country’s capital stock (i.e., its combined productive assets, from factories to server farms). Today, growth in capital stock is running at about 2% per year. By decade’s end, it could hit 3%. More and better capital equipment doesn’t guarantee greater worker productivity. But it is generally a precursor that enables firms to get more done per employee. 

Hype aside, there are already early signs of how AI will boost efficiency. One recent study found that software writers who used AI to help write code got an assignment done 56% faster than their counterparts doing all the work themselves. Another showed that admin workers using ChatGPT spent 40% less time on a task. A customer support firm got customer issues resolved 14% faster with AI assistants. These initial anecdotes could be the first harbingers of widespread gains to come. 

Remote work, which mushroomed during the pandemic, is another tech innovation that could get more out of the labor force. It doesn’t work for many types of jobs, of course. And many employers are skeptical about it, even for the knowledge-based office roles that are most amenable to telecommuting. 

Some employers that relied on it during COVID-19 have walked back remote policies, either requiring full-time, in-office work, or hybrid schedules with some time in the office. The upside: Remote work is helping more people juggle jobs and child care. Especially mothers of young kids. The female workforce participation rate has risen a full percentage point in the past two years, mostly due to more hiring of mothers with kids under age 6. It seems that even hybrid schedules make it tenable for more moms to work, which could grow the labor force as population growth slows. The number of jobs involving partial remote work has risen by a third in the past year, to 20 million, while fully remote jobs (13 million) have held steady over that time. 

The economical stakes

Economic figures can sound academic. Let’s make these more practical, by considering the real-world impacts of an economy growing faster vs. slower. A surprising amount is riding on small differences when you compound them over time. 

3% growth makes the national debt a far more bearable problem, for example. The debt, now at a worrisome 99% of GDP (a figure that doesn’t include obligations for Social Security and Medicare), is on track to hit 109% by 2030. With growth of 3% per year from 2025 to 2030, the debt would reach 102% of the larger GDP. Consider how much better a fast-growing economy feels for consumers. Growth averaged 3.8% in the 1990s after the 1990-91 recession. 239,000 jobs were added per month. In the 2010s (2.3% growth rate): Just 194,000 jobs per month. 

Both fiscal stability and broad prosperity depend on growing the economy at a robust pace for the long haul. It’ll take innovation and creativity, but it can be done.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

1. Assess the current financial situation.

You should start by thoroughly assessing the company’s current financial situation. This involves reviewing all financial statements, including the balance sheet, income statement and cash flow statement.

Example: If your company is experiencing a significant decline in revenue, a detailed review might reveal that certain products are underperforming. By identifying these weak points, you can decide whether to discontinue these products or find ways to boost their sales. This helps you understand the financial health of the company, pinpointing areas that need immediate attention.

2. Identify key areas for cost reduction.

Leaders should always pinpoint important areas where expenses can be cut without sacrificing the company's essential functions. This might involve cutting nonessential expenses, renegotiating contracts or finding more cost-effective suppliers.

Example: A manufacturing company might find that switching to a different supplier for raw materials could save 15% on costs, which can then be redirected to more critical areas of the business. Cost reduction can free up cash flow, allowing the company to invest in areas that will drive recovery and growth.

3. Prioritize spending on high-impact areas.

You should prioritize spending on areas that have the highest impact on the company’s recovery and future growth. Allocate resources to projects and departments that directly contribute to revenue generation and operational efficiency.

Example: If a tech company identifies that its research and development (R&D) department is crucial for developing new products that could boost future sales, the budget should prioritize funding for R&D over less critical areas. Focusing resources on high-impact areas accelerates recovery and positions the company for future success. 

4. Create a realistic revenue forecast.

Leaders should always create a realistic revenue forecast based on current market conditions and historical data. This forecast should be conservative to avoid overestimating potential income.

Example: A retail company might analyze past holiday sales trends and current economic conditions to project future revenues accurately. This conservative approach helps in creating a buffer against potential shortfalls. Accurate revenue forecasts enable better planning and resource allocation, reducing the risk of financial shortfalls. 

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5. Develop a cash flow management plan.

You should develop a detailed cash flow management plan to ensure the company can meet its short-term obligations while working toward long-term stability. This involves projecting cash inflows and outflows and maintaining an emergency reserve.

Example: A service-based company might set aside a portion of its revenue during peak seasons to cover payroll and rent during lean months. Effective cash flow management ensures the company can meet its financial obligations and avoid liquidity crises. 

6. Set clear financial goals and benchmarks.

Leaders should always set clear financial goals and benchmarks to measure progress and adjust the budget as needed. These goals should be specific, measurable, achievable, relevant and time-bound (SMART).

Example: A company might set a goal to reduce its debt by 20% over the next year. Regularly tracking this progress helps in staying focused and making necessary adjustments to the budget. Clear financial goals provide direction and motivation, helping the company stay on track toward recovery. 

7. Communicate the budget plan effectively.

You should communicate the budget plan effectively to all stakeholders, including employees, investors and creditors. Transparency is crucial for gaining support and ensuring everyone understands their role in the company’s recovery.

Example: During a company-wide meeting, the leadership team might present the budget plan, explain the rationale behind each decision and outline the expected outcomes. This helps in aligning everyone’s efforts toward common goals. Effective communication builds trust and ensures everyone is working toward the same objectives. 

8. Monitor and adjust the budget regularly.

Leaders should always monitor the budget regularly and make adjustments as necessary. The business environment is dynamic, and staying flexible with the budget allows the company to respond quickly to changes.

Example: If a new competitor enters the market and affects sales projections, the company should be prepared to revise its budget, perhaps by increasing marketing spend to maintain market share. Regular monitoring and adjustment of the budget ensure the company remains responsive and adaptive to changing conditions. 

Conclusion

Creating a strategic budget for a distressed company is a challenging but essential task. By following these eight steps — assessing the current financial situation, identifying cost reduction areas, prioritizing high-impact spending, creating realistic revenue forecasts, developing a cash flow management plan, setting clear financial goals, communicating the budget effectively and monitoring and adjusting the budget regularly — you can steer your company toward recovery and long-term success. 

Each step provides a clear pathway to stabilize the company’s finances, enhance operational efficiency and build a foundation for future growth. Ignoring these steps can lead to continued financial struggles and, potentially, the failure of the business.

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Below, I will explore how an ICF transforms corporate governance and drives business value, as well as how your company can develop and implement one tailored to your business processes.

A more adaptable approach to governance and risk management

Traditional internal control frameworks such as COSO and COBIT have provided foundational structures for governance and control. However, these frameworks often fall short in addressing dynamic business environments and specific industry challenges. Their limitations include rigidity, lack of integration across functions and insufficient focus on real-time risk mitigation.

Creating an ICF unique to your business helps you overcome these limitations by providing a more adaptable, comprehensive approach to corporate governance and risk management.

How to develop an ICF tailored to your business

Developing a specialized ICF begins with an extensive research phase in which you’ll identify gaps in existing frameworks such as COSO and COBIT that don’t address your company’s needs. This research involves analyzing case studies and reviewing compliance failures and operational inefficiencies in various corporations.

My go-to sources for such information include case studies from Harvard Business School and industry experts. I also recommend reviewing compliance failures documented by regulatory bodies such as the Securities and Exchange Commission and the Public Company Accounting Oversight Board. Industry conferences and workshops can also be good sources of insight, as can reports published by Big Four accounting firms. Additionally, the Journal of Accountancy and CPA Practice Advisor provide valuable perspectives and data.

Guided by the insights you gained during the research phase, you’ll then establish four core principles that form the foundation of ICF:

• Risk management. During this phase, you will create a dynamic risk assessment model that continuously monitors and evaluates potential threats across all levels of the organization, ensuring your company can swiftly adapt to emerging risks.
• Compliance assurance. Next, you will ensure that all organizational activities adhere to applicable laws, regulations and internal policies. Your ICF should integrate compliance checks into daily operations, providing a seamless process for monitoring and reporting compliance issues.
• Operational efficiency. Here, your company will streamline processes to eliminate redundancies and enhance productivity. The framework should promote process optimization through regular reviews and the adoption of best practices. For example, you could implement robotic process automation to handle repetitive operational tasks. In our company, we have deployed several robots into operational processes, which has boosted efficiency. Another best practice we follow is benchmarking, where we compare our processes and performance metrics to industry standards to identify areas for improvement. 
• Financial reporting accuracy. Lastly, to ensure the integrity and accuracy of financial reporting, you will implement stringent controls and regular audits. Your ICF should include mechanisms for detailed financial oversight, preventing errors and fraud, and ensuring that financial statements reflect the true financial position of your organization. We have implemented Microsoft Power BI, enabling real-time tracking of financial metrics and anomalies, which facilitates prompt corrective actions. Additionally, by enhancing operational efficiency, we have accelerated the close process, providing ample time for thorough reviews and adjustments to ensure the accuracy and integrity of our financial statements.

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

Key components of an ICF

The governance structure established by your ICF should clearly define roles and responsibilities across all organizational levels. It should include a board of directors, audit committees and internal control committees, each tasked with specific oversight functions. Your senior management team is responsible for implementing the controls, while line managers ensure day-to-day adherence. This component emphasizes the importance of leadership setting the tone at the top, promoting a culture where employees understand and value internal controls.

For risk mitigation, you will want to integrate regular risk assessments. In my experience, effective risk assessments involve a mix of qualitative and quantitative methods. Qualitative methods include SWOT analyses, risk workshops and interviews, risk assessment matrices, scenario analyses and the Delphi technique. On the quantitative side, I have found Monte Carlo simulations, value at risk, sensitivity analyses, stress testing and the probability-impact matrix to be invaluable. These tools provide a comprehensive understanding of potential risks and also help in formulating mitigation strategies.

It’s also important to implement control activities to mitigate identified risks. Examples of such actions include segregation of duties to prevent fraud, authorization and approval processes for transactions and regular reconciliations to detect discrepancies.

To ensure your framework’s effectiveness, you will also need to monitor and evaluate it regularly. This may include conducting internal audits and performance reviews. You will also want to incorporate feedback mechanisms.

Implementation process

Start your implementation with a pilot phase in a select department to test the framework’s effectiveness. Gather feedback and use that to refine and improve your framework. Once you feel comfortable with it, carry out a full-scale implementation across the rest of your organization with structured rollout plans.

Equipping your company for the future

Compared to traditional frameworks such as COSO and COBIT, an ICF tailored for your business offers unique features and improvements. It is adaptable, integrates real-time risk assessment, promotes seamless cross-functional integration and maintains robust internal controls in dynamic environments.

Implementing this kind of innovative ICF can transform your corporate governance, driving significant business value. By addressing traditional gaps and enhancing compliance, operational efficiency and financial reporting accuracy, this framework sets a new standard in internal controls, ensuring your organization is well-equipped to meet future challenges.

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One pointed out, “The market of people speaking an alphabet soup of languages has greatly increased, and we are concerned about lost sales and reputational damage inadvertently caused by employees who lack cultural competence. We’ve observed some who speak a second language well enough to get into trouble by using the wrong vocabulary — known as false friends, which are words that are identical or resemble each other in both languages but have vastly different meanings.”

“We monitor all calls, which at times can be hilarious,” Chicago-based “Brandon” said. “For example, I heard a sales rep apologize for the failure of a secretary to mail out an insurance renewal form to one of our Spanish-speaking clients. He meant to say, ‘I am embarrassed,’ which in Spanish is, ‘Estoy avergonzado.’ Instead, he said, ‘Estoy embarazada,’ which means, ‘I am pregnant!’ Another meant to say her son would be in a parade (desfile), but instead used parada, which is a stop, as in bus stop! As (we have a lot of immigrants in the U.S.), I think you could do an informative story about the need for cultural and language competence.”

Myth of the car that doesn’t go

In an international setting, the business community must determine if it can use the same product name as it does at home. For example, the Chevy Nova acquired the urban legend of a product name — Nova — that sounded like the Spanish “no va,” meaning “it doesn't go.” Some in media claimed incorrectly that car sales were adversely affected because of that name being selected. In reality, “no va” is not pronounced the same in Spanish as “Nova,” and the car was a success in Mexico and Venezuela.

A skit about poorly selected product names revealing a lack of cultural awareness would be a sure hit on Saturday Night Live, including:

Ford failed to catch on that the word “pinto,” as in the Ford Pinto, is Brazilian slang for male reproductive organs.

IKEA’s Fartfull workbench was the butt of jokes, though “fartfull” in Swedish means “full speed.”

Coors obviously did not comprehend that translating its “Turn It Loose” advertising tag line into Spanish would be understood as “to suffer from diarrhea.”

Got Milk? translated into Spanish could be interpreted as “are you lactating?”

Ads for Mazda’s Laputa minivan stated, “We have designed Laputa to deliver maximum utility in a minimum space while providing a smooth, comfortable ride” and “a lightweight, impact-absorbing body.” In Spanish, “la puta” means “the prostitute.”

American Airlines’ slogan “Fly in Leather” could be interpreted in Spanish as “fly naked.”

Mercedes-Benz began selling in the Chinese market under the brand name Bensi, which in Chinese means “rush to die.”

Credit for perhaps the most hysterical fail that has made it into business texts goes to Coca-Cola’s entry into China. It first appeared as Kekoukela, which means “bite the wax tadpole” or “female horse stuffed with wax,” depending upon the dialect.

Wrong word choice has consequences

“The wrong word choice can have serious consequences both interpersonally and in the business world,” says Lars-Olof Nilsson, retired lecturer in English and German at JIBS, Jönköping International Business School at Jönköping University in Sweden.

Nilsson works as a copy editor and writes about English on his website copyeditor.se.

The title of his recently published book — a best seller on Amazon — is itself a hilarious example of our topic: It's Not the Farts That Kill—It's the Smell! False Friends and Other Treacherous Words in English-Swedish Communication.

As Nilsson explains, “‘Fart’ in Swedish means ‘speed,’ and ‘smäll’ (or ‘smell’) is a ‘crash.’”

I should point out that his book is not limited in value to Swedish speakers, as he lists over 400 false friends in various languages that can easily get us in hot water.

For example, Nilsson cites “actual” and “eventually.”

“In English, ‘actual’ is something ‘real, existing and authentic.’ However, in several European languages, it means ‘current, present, up to date.’ Or, take ‘eventually,’ which to English speakers means ‘finally, later, in the end’ — something that will happen — but the corresponding words in Dutch, French, German, Italian, Spanish and the Scandinavian languages mean ‘perhaps, possibly.’ It is clear these differences may have serious consequences if improperly used or translated.”

Please don’t do that in my car

Even an everyday word such as “restroom” may cause confusion.

“Non-native speakers of English understand the word ‘restroom’ to indicate a room for relaxation or taking a nap,” Nilsson observes and relates an occasion when an American was picking up his Swedish friend at an airport.

When they got into the car, the American said, “Perhaps you need to go to the restroom?”

The Swede answered, “No, I can do that in the car.”

For anyone working with people from different countries and cultures, when we know what words to avoid, we reduce the chances of hurt feelings. It's Not the Farts That Kill—It's the Smell is a delightful, practical read that will keep you awake at night laughing!

Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.

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