Confidence is good. Most people would agree with that. Confidence is trustworthy. It is bold, daring. Confidence is attractive.

Overconfidence, on the other hand, evokes a whole different set of emotions. Overconfidence can be annoying. In some instances, overconfidence can be repulsive and shady.

But overconfidence can also be a cause for worry. Excessive or unwarranted confidence tends to be compensating for some other, not entirely obvious, shortcoming. People who gush overconfidence are not altogether believable. The most cynical and skeptical of us cannot be expected to take overconfidence seriously.   

I’m thinking about all this because a recent Well Fargo/Gallup Small Business Survey found that a significant number of small businesses seem a little too confident at a time when there’s a lot of uncertainty.

According to Gallup:

  • Seven in 10 business owners describe themselves as “more optimistic than pessimistic” about the financial outlook for their business over the next 12 months.
  • Eighty-four percent say their company’s financial situation will be either very good or somewhat good one year from now.
  • And while the survey respondents’ feelings about the national economy are more mixed, over two-thirds (69%) believe their company “has the right strategy to handle changes in economic conditions.”

I don’t know about you, but when I hear that 70 percent of people are confident about something, I don’t think, “This world is full of smart people, and those smart people tend to herd together and validate each other.” No, I think, “How do I avoid those people at all costs?”   

Recession signs and your role as an advisor

At our most recent Facebook Live, we discussed the possibility of a recession and what business owners can do to prepare. The economic signs have been covered extensively, and sure, lots of business owners might be too busy to pay attention, but they do so at their own peril.

Which is why they pay you, trusty advisor. Are you keeping them informed about the risks out there? Or are you validating all their braggadocious nonsense?  

Accountants are a risk-averse bunch, and right now might be a good time to fly your risk-averse flag in the damn faces of your self-assured clients. Accountants who have become “trusted advisors” in the real sense (not in the accounting profession buzzphrase sense) will not shy away from telling clients what they think.

That means, calling your small business clients out when they’re stupidly overconfident. Giving your clients a dose of reality could be the thing they need to protect themselves and their businesses so in case things do take a turn for the worse, they don’t wind up with egg on their face.

Here’s how to do it:

Don’t hate; appreciate

Okay, you may have read that meandering intro and thought that I’m the most idiotic person who ever had a thought about anything in the accounting world.

While that may be true, I also understand there’s risk to telling your blustery clients that they’re in need of a reality check. That’s why it’s a good idea to take their confidence in stride, even admire the fact that they believe they can weather whatever economic storm comes their way.

For clients who have a good grasp on economic conditions, especially as it relates to their industry, acknowledge their preparation and self-assuredness. Even for those clients whose confidence is unwarranted, you can appreciate their lack of uncertainty in a time when others are more cautious. By recognizing their steely nerve, you don’t risk them storming out the door or casting yourself as a dismissive accountant who’s overly cautious.

Ask all the questions

Once you’ve convinced your client that you don’t believe they’re delusional, you can begin the subtle interrogation. Again, if your client really wants a trusted advisor to provide insights but also guidance for their business, they will expect you to have lots of questions, particularly if you are feeling bulletproof about the next recession.

Direct your questions at the specifics of their plan (if they have them).

  • How do they address risks like a big change in consumer behavior?
  • What if a major customer or supplier goes out of business?
  • What other worst-case scenarios have they thought of?

If they don’t have satisfying answers to a lot of your questions, that’s a pretty good sign that their confidence is paper thin, and you’ll need to offer some ideas.

Make suggestions (and speak hard truths, if necessary)

Ultimately, this is how you earn your keep. It’s easy to throw cold water on an idea; an invaluable advisor will suggest refinements or fresh ideas that will help plug the gaps. It isn’t easy for business owners to step outside of their world and see all the potential pitfalls, which is hopefully part of the reason why they come to you.

And that’s also why this is the part of the show where you may still have to throw that cold water around. Suggesting to a client that they delay a major equipment purchase, expanding to a second location, or hiring new employees will not be an easy message to deliver.

But it may be the one they need to hear.

Are we headed for a recession? Time will tell, but the confidence of small business owners indicates that many are feeling invincible at a time when discretion is warranted.

Do your clients a favor and chat about how they’re feeling about the future. And for the overconfident ones, see if you can talk a little sense into them. They may wind up thanking you later.  

Caleb Newquist Caleb is Editor-at-Large at Gusto. In 2009, he became the founding editor of Going Concern, the one-of-a-kind voice on the accounting profession, serving in the role for 9 years. Prior to Going Concern, Caleb worked as a CPA for nearly 6 years in New York and Denver. He lives in Denver with his wife, two daughters, and two cats.
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