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Comment by kolya3 | Hacker News Reader

Quick summary: Guy starts a successful business but outsources the accounting to his wife's friend's brother. The accountant books unfinished business as money in the bank. Economy sours and the truth comes to light. Guy goes out of business.

So the "dark side of entrepreneurship" is losing your business because you outsource a critical component and don't bother to double check the results?

I often wonder if the high 90% startup failure statistic is a result of negligence and lack of common sense. I hope to put my money where mouth is and find out on my own in the near future. Can anyone on the other side of the fence chime in on this?

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Negligence is not always obvious.

Most entrepreneurs with a technical background should take a class or two in managerial accounting before they start. They should work hard at understanding it and developing financial models for their business. And they should pay as close attention to their business as they do their product.

Perusing HN you see how few articles there are about managing the receivables cash flow cycle, negotiating with vendors, forecasting financial performance and cash flow, dealing with the legal aspect, working with banks, documentation, managing salespeople or negotiating sales relationships, etc. But there are many companies with decent products that fail, and many are caused by one of those problems.

A course in accounting isn't necessary. The first few chapters of a "Principles" text and PAYING ATTENTION is all that is needed if you're not doing the actual accounting yourself. EDIT: "Accounting the Easy Way" is a good book for anyone who just wants/needs to understand it rather than doing it.

Chances are you won't make _this_ mistake, but if your company gets off the ground, you'll make a couple of big mistakes that lose you customers, cash and pride.

And you'll look back on those mistakes and wonder to yourself, much like the hero of this story, how could I have let this have happen?

It's embarrassing and humbling, even more so when it's written up in the New York Times.

Yeah - my experience is that most startups (including my own) really do fail because of the founder's stupidity, but it's very hard to avoid that stupidity even if you know this. There're so many balls you have to keep in the air as a founder, you're bound to drop some of them. It's only after you've practiced through a few failures and can instinctively avoid some of the more obvious failure modes that you start having a reasonable chance of success.

If your business ever goes beyond a one-man operation, as this guy's did, you will find it necessary to trust other people -- partners, employees, vendors, lawyers, and, yes, accountants. Whether that trust is well-placed or mis-placed can be a very fine line. You seem to have the same deep understanding of what went wrong as this guy's wife does from her armchair in the living room. After your as-yet-uncreated business survives for 20 years, provides a living for 40 employees, and becomes a leader in its space, feel free to come back here and educate all of us on the meaning of negligence and common sense.

If he failed to look at the books in 20 years, or even once notice the shoddy numbers, that would be very strong evidence of negligence. Delegating an essential job doesn't take away the responsibility for supervising performance to make sure the job was done right.

Too right. The entire build up of that article was essentially to blame not the owner, nor even the accountant, but the wife!

You assume too much. Who's to say he didn't instruct the accountant to cook the books? That seems the most likely scenario to my cynical mind. What kind of accountant would make that kind of basic error?

It beggars belief that the guy could run a successful business for 20 years, but could not understand the difference between receivables and booked work. He was probably boosting cashflow to keep the banks happy, then one day they figured it out and shut him down. Otherwise he would have surely been able to get loans for that vital "equipment".

Ah well, happens all the time. I feel sorry for the guy but he should have been more careful.

You probably don't have time to comment on Hacker News threads when there are so many moving parts of your industry-leading decades-old business that you need to go attend to. Unless you're not speaking from a position of comparable experience. But I doubt it. Opinions completely divorced from the actual facts of the case or from any relevant experience would never be proffered on Hacker News. You probably know exactly what you're talking about.

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