Avoiding unconscious bias when making financial decisions for a small business

Entrepreneurs and small business owners are often cautioned against becoming victims of their emotions and behavioural biases. As a leadership development specialist who has worked with thousands of entrepreneurs, I have long been aware that there is an emotional component to an entrepreneur’s success – or failure. All too often, even hard-working entrepreneurs sabotage their own success with a lack of self-belief and confidence in their own abilities. This typically revolves around their historical and cultural relationship with money, with past experiences and family beliefs having an outsize impact on their attitude to money.

When a child is raised in an environment where money is considered to be the “root of all evil” or someone wealthy is described as “filthy rich”, it is perhaps not surprising that they develop an unconscious bias and subconsciously self-sabotage, making it harder to achieve financial wealth, despite trying so hard to achieve it.

The failure rate of start-up businesses in South Africa is high, with 75% of small businesses closing within their first five years. There are numerous factors contributing to this high failure rate. Certainly, there is no question that starting a business, growing it and ensuring it becomes profitable is challenging, particularly in the current economic environment. Ensuring that there is sufficient money to pay employees and suppliers at the end of every month, keeping abreast of what taxes are due and managing cash flow can be stressful.

When the pressure becomes overwhelming, business owners who lack confidence in money matters are more likely to avoid calls from their creditors, switching off their phones and ignoring emails to avoid or hide from the problem. This kind of behaviour can have catastrophic consequences, resulting in the business potentially being evicted from their premises if the rent is not paid, banks and investors calling in monies owed, suppliers refusing to supply goods or services and, in a worst-case scenario, permanent business failure.

A business owner or entrepreneur who has an emotionally confident approach to money is more likely able to see the bigger picture and recognise the current bump in the road for exactly what it is. As a result, they’ll tackle the issue head on by calling their landlord or supplier to agree on a new payment plan, and they will play open cards with their bank or investor so that staff can be paid. Their ability to shed light on the issue allows for a shared solution to be created.

The right attitude and mindset of the business owner is key, as is being aware of any unconscious bias they may have toward money and wealth.

In South Africa, financial readiness is a key weakness in the small business sector with many small businesses struggling with a lack of proper financial management skills. My experience with entrepreneurs leads me to believe that entrepreneurs and business owners with the right attitude and mindset, and a positive relationship with money and wealth, are more likely to be successful.

The SAB Foundation, an independent trust that invests millions each year in developing entrepreneurship in South Africa, took the initiative to build on improving financial readiness in the small business sector by developing a series of workshops entitled Money Magic. These form part of their flagship Tholoana Programme accelerators that are powered by Fetola. This includes helping entrepreneurs to recognise any conscious or unconscious biases they may have about money, finances and wealth and to decouple these biases and emotions from their financial decisions. We also work on building their knowledge and confidence through an improved understanding of accounting and better financial management skills with the end goal of helping these businesses grow sustainably.

SAB Foundation Executive Director Bridgit Evans says the foundation shares Fetola’s commitment to empowering South African entrepreneurs with the tools and mindset needed for sustainable business success. “Our work with entrepreneurs across the country has demonstrated that addressing the emotional and psychological aspects of money management is crucial for fostering financial readiness. Through the Tholoana Programme and our Money Magic Journey, we ensure that entrepreneurs gain both technical financial skills and develop a healthier relationship with money. This dual approach builds confidence, improves decision-making, and ultimately leads to long-term business success.”

My top five tips to get entrepreneurs financially ready for long-term business success are:

1. Read up about the emotions of money to recognise how your subconscious beliefs or attitudes about money may be affecting your behaviours and impacting your business decisions.
2. Build your financial muscle by learning how to manage your personal and business finances. For example, understand how interest works so that you can work out the full cost of buying on credit or what a loan will cost you.
3. Build your business financial muscle by learning more about financial management. Ask your bookkeeper or accountant questions – and keep asking until you understand.
4. Onboard a financial management system to help you manage your money and eliminate confusing accounting terminology.
5. Plan to save 10% of your revenue every month, until you have cash reserves equal to three months of operating expenses. This is your ‘emotional insurance’ which will not only reduce your fear of financial failure but will also allow you to make wise financial decisions.