The Accountant and the Entrepreneur
Martin was highly animated as he explained to me his latest embryonic business idea. It was to be the first of its kind in Ireland, an entertainment venture with an original twist. His enthusiasm was infectious as he outlined the unique benefits customers would enjoy. Then I noticed a little voice within prompting me to warn him of all the risks to be considered. I bit my lip and focused on listening. Just as well. Martin soon referred to his own accountant in a derogatory manner. His shoulders hunched up and his face took on an agonised look as he pointed back over his shoulder in the direction of what I took to be his accountant’s office about twenty miles away. “Typical flippin’ accountant,” he said. “He is putting a damper on the whole thing. All accountants ever see is the blinkin’ downside.”
Our advanced society owes its progress to successful business men and women. The Irish economy was long a laggard in the developed world because we exported our budding entrepreneurs to Britain and the US. We now see how these business buccaneers have brought our country to the pinnacle of economic success.
Many of these entrepreneurs, while acknowledging the usefulness of modern management practices, often made much of their progress by using a ‘seat of the pants’ strategy. When the hard work was done they put the business in the hands of the professional managers and went off to seek another ride on the helter skelter of entrepreneurial endeavour. The rugged entrepreneur and the accountant are strange bedfellows, each possessing many opposite personal attributes.
Entrepreneurs are often inspired by an emotional vision of a new market opportunity. The inspiration, the anticipated financial rewards and acclaim enable him to accept a high level of risk in pursuit of the dream. The so called ‘typical accountant’ sees the world as a place full of risk and threats. Where the pessimist sees barriers and risks, the entrepreneur sees hurdles to be crossed on the way to success. Risk takers are the furnace of a successfuleconomy. They spot opportunities and enter into commitments to turn those opportunities into reality even before they have necessary resources in place. “Hooray we’ve got the contract … what the hell do we do now?”
We are all familiar with the typical milestones that a new business traverses in its life cycle.
6. For the fun of it – let’s go through these steps again to bring the business to a higher level or let’s start a new business
Each of these steps are opportunities for the accountant to anticipate client needs, advise in advance, and pre-sell services to meet needs that the client may not yet be aware of. It is your opportunity to help your client to avoid being a business casualty statistic. While we review the milestones below, you can tick off in your mind the services you can position and pre-sell.
Firstly, there is the launch of the business followed by the rush to break even. However, the owner cannot celebrate this milestone because of the urgent need to reach bare viability.
Viability is a cause for celebration, but not for long; it’s all shoulders back to the wheel with a big effort to expand until growth targets are met and a level of sustainability has been achieved. Now with a mature business the owner can really clap himself on the back. But there is still the danger of complacency and stagnation. The rugged entrepreneur will counter this threat by embarking on a new phase of development, passing through more or less similar milestones as above until a new level of maturity is reached. Alternatively he will put the business in the safe hands of a professional manager and kick start another fledgling business. There is always a challenge to be met and it is this that keeps the entrepreneur, his people and advisors on their toes.
The business journey is characterised by risk taking and risk management through professionalising the management of the business. While the business has its own journey to make, the business owner also travels a parallel highly personal journey. This will be characterised by four steps along a ‘time input’ and‘emotional attachment’ as follows.
The entrepreneur will more than likely have had her first taste of business by working as an employee, i.e. Quadrant 1 – Employee – Rigid Time Input/Emotional Detachment.
Her working hours as an employee will be rigidly defined by the laws governing the employment. She may envy the apparent time freedom and wealth of the business owner, but feel relatively emotionally detached from the business. If she is ambitious she will no doubt wish to emulate her successful employer by striking for the freedom of owning her own business.
Now she has moved into Quadrant 2 – Self Employed – Rigid Time Input/ Emotional Attachment. Having looked forward to the freedom of being self employed she is shocked to find that her time becomes more highly committed to the business than expected, much of it behind the scenes. Also there can be a highly charged emotional connection with the business and its success, and this attachment may impair objectivity in decision making. The self inflicted and unjustified belief that if the venture fails then ‘I am a failure’ can cloud objective thinking. It could, for example, prevent the owner cutting her losses and winding up.
There is the added complexity of engaging family members in the business as it grows. The need to hire professional management may be ignored in favour of appointing less qualified family members. The consequences of poor management become a major stumbling block. When this happens the founder may find it difficult to take a well earned back seat and so feels frustrated with the inability to bring the enterprise to reach its full potential. She finds herself like an employee trapped and working in her own business. However, with advice from her accountant she frees herself or avoids this trap by adopting an important new mindset.
Now the owner moves into Quadrant 3 – Business Owner – Flexible Time Input/Emotional Attachment. Having understood the necessity to adopt professional management practice and engage competent staff and managers, the owner creates more available time to work on the business rather than in it. This liberates him from time bondage to be a serial business starter while also increasing the amount of quality personal time and the possibility for other pursuits such as politics. But the businesses are still his babies, and there is pride in the thought that if retained for future generations there will be a continuing legacy to honour him, the original founder. There is also major potential for conflict within the entrepreneur’s family and relations involved in the business. The business owner often needs sound counselling and advice to ensure that grounded decisions are taken in the interests of the business. Because of his attachment to the business his objectivity may be challenged with changing market conditions. He needs to recognise that there is a best time to cash in his chips and invest in something more strategic for the changing market environment. Being emotionally attached, this opportunity may not be sought and may be missed. It could spell disaster in a recession.
The final move for the entrepreneur is to Quadrant 4 – Business Investor – Flexible Time Input/Emotionally Detached. It is a move that relatively few make or wish to make. Having freed himself from the time constraints of being a business owner and the emotional attachment that goes with it, the owner is free to buy and sell entities on the objective criteria of earnings per share, share price and strategic business fit for all businesses owned. Not all want to travel the full journey to investor maturity, but it is important to have an idea of the potential down the road when one first goes into business.
There is none better than the Chartered Accountant to advise and coach their business clients as they start and develop their careers and to prompt them to consider the long term options down the road.
The proactive accountant is thinking ahead at least for the A list clients, anticipating the challenges along the way, suggesting and providing solutions just in time, and forging a veritable partnering between advisor and client as they successfully travel the journey to prosperity together. However, there is
this little problem of polar-opposite mind sets: Risk Averse Accountant advising the Risk Eating Entrepreneur.
This problem has the potential to be a serious stumbling block in the professional relationship and it needs to be addressed effectively. By the way, Martin, from the little story at the beginning of this article, left his accountant for a new advisor who knew how to handle entrepreneurs. We will continue this topic in a later issue. See you then.
Sean Kilemade, FCA, is Head of Practice Consulting at the Institute of Chartered Accountants in Ireland. Email: email@example.com