‘Failure is not an option!’ Except it is, if you’re one of the eight out of 10 start-ups that fail in their first two years. There’s a lot of be said for having self-belief, but it’s not much of an airbag when you hit the brick wall of reality. Being an entrepreneur, your problem probably isn’t a lack of confidence. It’s more likely the reverse. The mistake many new enterprises make is not adding a healthy measure of pessimism.
You see, sometimes it pays to imagine the very worst that can happen. Justin Rourke, an independent financial adviser with Armstrong Watson, talks about ‘the most important piece of advice I’ve ever provided’, which was for a young father starting up his own business. Justin ensured he had the right life and critical illness cover on both his business and his home. Just four years later, the client did come down with a serious illness, which fortunately was covered by both policies (even better, he got better). By anticipating the worst, this entrepreneur ended up with the best imaginable outcome.
Leading any successful business is really a juggling act between optimism and pessimism. Take the issue of securing funding for your business. Your choices are usually either a bank loan or some form of private equity. Either way, you need to convince your backers that you’re a solid prospect. This means a) banging the drum about all the wonderful things you’re going to achieve, but also b) showing that you’ve thought hard about the setbacks that could strike, and what you’d do to overcome them. So in giving your pitch you’ll have to be simultaneously Tigger and Eeyore (you could ask your accountant to play the second role, as it comes naturally to them).
Some of the sunniest business scenarios come with a cloud firmly attached. Suppose, for instance, that your business were to go ballistic and grow much faster than predicted in your business plan. Unless you react swiftly, this kind of unplanned growth can trigger all sorts of problems relating to cash flow, tax, personnel and infrastructure, and may even end up knocking you backwards. It’s your accountant’s job to spot these risks before they materialise, so that you can ride the wave of rapid growth instead of getting bowled over by it.
Tax is another area where your glass can be both half-full and half-empty. Managing your tax bill is one of the most important skills for a business to perfect, since it affects everything from your cash flow to your profit margins. On the one hand, you want to make your tax bill as small as it can legitimately be – e.g. by claiming all the right expenses and allowances and by using government incentives (the optimistic angle). On the other hand, you don’t want HMRC to accuse you of underpayment (the pessimist’s fear). Rigorous bookkeeping and accurate accounting are key to achieving both these aims at the same time.
The successful entrepreneur really needs to be two people: the optimistic public face and the more anxious private one – hoping for the best but preparing for the worst. Being too cautious might be a drag on your growth, but overconfidence can turn minor setbacks into calamites. The challenge is to walk a line between the two and be the ‘optipessimist’ your business needs. The right accountant, of the kind you can find at Unbiased, can act as a sounding board to help you get the perfect balance.
Get matched to an accountant based on your business needs on unbiased.co.uk.
Further reading:
The best value piece of advice ever
How accounting helps your business
