The Reality of Small Business Finances: Why “Faking It Until You Make It” Doesn’t Work
John F. Hendershot
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In the world of small business, the phrase “fake it until you make it” has become a common mantra for many entrepreneurs. While it may sound like a savvy strategy for handling uncertainty and navigating the tough early years of a business, the reality is that this approach is often a dangerous one. For many small businesses, the truth is much more sobering: they are not thriving, they are barely scraping by. And worse, many of them are “faking it” in ways that hide the true state of their financial health, ultimately setting themselves up for failure.
This article aims to explore the troubling truth about small business finances, why “faking it until you make it” is an unsustainable strategy, and what business owners can do to truly succeed—beyond the bravado of keeping up appearances.
The Harsh Reality: Most Small Businesses Are Broke
It is estimated that around 80% of small businesses fail within the first 18 months of operation. While there are various factors that contribute to this staggering statistic, one of the most significant reasons is poor financial management. Many entrepreneurs start their businesses with passion and vision, but lack the necessary financial discipline to keep the operation afloat.
The misconception that small businesses are thriving, when in fact they are struggling, is often perpetuated by the founders themselves. In their desire to appear successful to clients, investors, or the public, many business owners end up masking their financial struggles. This can mean anything from spending excessively on office decor to taking on clients they can’t afford to serve. The focus is on appearance—looking successful—rather than on building a sustainable, profitable business.
The Dangers of "Faking It Until You Make It"
One of the most common problems small businesses face is cash flow management. According to a report by QuickBooks, 61% of small businesses struggle with cash flow at some point. Yet, these businesses often hide the issue, choosing to ignore it or push it under the rug in order to maintain a facade of success.
Many small business owners rely on personal savings or high-interest loans to cover business expenses, but this strategy is unsustainable in the long run. Business owners might project confidence on social media, attend networking events, and even appear to make large sales. However, the cash coming in doesn’t always match the cash going out, creating an illusion of success that will eventually crumble when the bills come due.
In an effort to maintain a profitable image, many small business owners ignore the critical aspects of their financials. They may avoid tracking expenses properly, skip on paying taxes, or underreport income to seem more successful than they actually are. This practice is short-term thinking at its worst, as it ultimately leads to financial instability and legal troubles.
Ignoring finances can lead to poor decision-making. Without clear financial insight, a business owner may invest in the wrong things, neglect essential operational costs, or fail to set aside money for taxes or future growth. The result is an environment where decisions are made based on guesswork rather than facts, which leads to costly mistakes.
To appear successful, many small business owners turn to debt to fund their operations. The problem arises when they do not fully understand the implications of carrying that debt. According to the U.S. Small Business Administration, approximately 50% of small businesses have debt. While borrowing money is often necessary to start or grow a business, many entrepreneurs over-leverage themselves without considering the long-term impact.
This reliance on debt may appear manageable in the short term, but as monthly payments mount, it becomes increasingly difficult for the business to maintain liquidity. Debt can suffocate growth, force business owners into difficult financial decisions, and, in extreme cases, push them toward bankruptcy.
Many small businesses undercut themselves by charging too little for their products or services. This often stems from the fear of losing clients to competitors, or a desire to look affordable. However, underpricing is one of the most dangerous ways to “fake it until you make it.” Entrepreneurs may be able to attract more clients, but they are not generating enough revenue to cover costs, let alone turn a profit.
According to a survey by QuickBooks, 40% of small business owners report that they undercharge for their products or services. While it might seem like a good strategy to attract customers, it actually undermines the business’s long-term viability. It may also lower perceived value, making it more difficult to raise prices later on.
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In an effort to appear busy and successful, many entrepreneurs take on more clients or work than they can handle. This over-commitment leads to burnout, poor service quality, and ultimately, a damaged reputation. Many business owners view long hours and full calendars as signs of success, but in reality, they are signs of mismanagement.
Business owners may also avoid delegating tasks to others because they don’t trust their team or they feel the need to control everything. This not only leads to burnout, but also to a lack of efficiency, and can severely limit the growth potential of the business.
What Business Owners Can Do to Avoid the Pitfalls of "Faking It Until You Make It"
Business owners need to take a hard look at their financial situation and face the reality of their cash flow. Stop pretending everything is okay when it isn’t. Use accounting tools and software to track expenses and revenue, and meet with a financial advisor to understand how to improve your financial health.
Rather than focusing on appearing successful, shift your focus to measurable financial goals. Are you looking to break even this year? How can you optimize cash flow or reduce debt? Setting clear, achievable financial milestones can help ensure the long-term sustainability of your business.
Being transparent with your team and stakeholders about challenges is crucial. Fostering a culture of openness and honesty will encourage collaboration and problem-solving. Instead of pretending everything is perfect, embrace vulnerability and seek support when needed.
If you don’t know how to handle financial stress, ask for help. Whether that’s through networking, finding a mentor, or hiring a business consultant, seeking advice from others who have navigated similar challenges can provide valuable insights and help you avoid mistakes.
Building a business takes time. Resist the temptation to chase after short-term gains or appear successful before you’re actually there. Instead, invest in strategies that will allow for long-term, sustainable growth. Focus on profitability, building a strong client base, and managing cash flow effectively.
Conclusion: The Truth Behind “Faking It Until You Make It”
The allure of “faking it until you make it” is undeniable. It’s tempting to try to project an image of success while facing financial difficulties, but in the long run, this approach does more harm than good. Most small businesses that try to fake success end up failing because they are not addressing the underlying financial issues that are critical to growth.
Business owners should shift their mindset from focusing on appearances to focusing on creating a sustainable and profitable business. By being transparent with themselves, managing finances effectively, and making decisions based on long-term goals, entrepreneurs can build a foundation for success—one that will last, rather than one built on illusion.
The lesson is clear: it’s far better to be real and build a business with substance than to rely on short-term tricks that ultimately undermine success. True business success comes from financial acumen, a sustainable growth strategy, and the ability to face challenges head-on.