Trust but Verify

Too frequently we hear clients say that they shouldn’t have trusted their partners, or bankers, or previous owners of the business, and that this is the ultimate reason for the demise of their business.  It’s the bankers fault he pre approved them for a loan higher than they needed, its the partner’s fault for sucking all of the cash out of the business, or its the previous owners fault for misrepresenting the financials before they sold them the business.  While these statements may hold some merit, each of us is in control of our own decisions and in these situations our clients trusted blindly.  It was this blind trust that was their ultimate downfall.

Ronald Regan coined the phrase “Trust but Verify” when discussing US relations with the Soviet Union.  At the time, there was too much at stake to blindly trust the Soviet Union that their actions were peaceful in nature.  The President’s mentality was trusting enough to continue cooperative friendly discussions and agreements, but verified the actual actions of the Soviets to assure they were honorable.  Mishandling the Soviet relationship could have led to catastrophic outcomes such as nuclear warfare.  Trust but Verify may have saved us from World War 3

This mentality should be held by each and every small business owner.  There is much at stake for all of you.  The debt you hold is tied to your home, to your business, and to your PG.  You have no way out.  Consequences of failure would be catastrophic. So why trust blindly?  Trust that the man selling you your business is a good guy, but verify that the financials he shows you are accurate.  Trust your employees and managers to handle the day to day, but verify that their level of productivity is sufficient.  Trust your partner, but verify your cash flow, distributions, and draws.  Trust your banker, but read all documents thoroughly.

Small business owners are natural risk takers.  Entrepreneurs are comfortable with risk.  However, a good businessman always make the conscious effort to minimize his risk and maximize his returns.  These are the people who will succeed. By trusting that others are out for your best interest but not verifying their commitments by their actions, you take on unnecessary risk and set yourself and your business up for failure.  The results of which will leave you, your family and your home holding the bag… left with all of the debt and no cash flow