Prepare for failure – don’t plan to fail

True entrepreneurs minimise the risks that they bear personally.  Yes, I know this goes against conventional wisdom about entrepreneurs.

What the most successful entrepreneurs have is a vision and a determination to make something succeed. This is actually pretty rare and economists nowadays include entrepreneurship along with land, labour and capital as the drivers for an economy.

What this means is that others often recognise this ability and are willing to take a risk on them.

Take a property developer as an example.

The land owner will be paid an option for purchase, with monies payable as the land is sold to buyers.

Architects, planners and many of the other suppliers to the industry will take risks on the right people in providing their services, either for free or at a great discount tied to a later bonus.

Companies may be willing to provide their goods on a lease basis, meaning that they bear their own costs of design and construction. For example, lifts/elevators can be supplied on a lease basis, reducing that cost to the developer and shifting it to tenants.

Bigger companies will be willing to place small bets, so to speak, on the success of entrepreneurs.

You need to learn to think like this – as this both maximises your cash, and also shifts the risk of failure onto a lot of other shoulders.

Even if you do everything right, things that aren’t in your control can still destroy your business. Business partners can lose the plot and pull out or sue you. Your main customer may become bankrupt. The economy may slow down and your target market shrink. All these things can happen.

In this context you need to think about how to minimise the collateral damage to your employees, investors and your family. Some upfront accounting and legal advice is vital.

The legal system is built on hundreds of years of experience on what can go wrong in business. The conventional company and ownership structures are generally the best practice that society has found to deal with most situations.

Please don’t ignore all that stuff just because it costs money. You may find in a couple of years that thousand dollars or so not spent may cost you a hundred times as much when things go wrong.

Think of it as buying insurance upfront.