How to fake your finances when talking to strangers

Ok, tongue firmly in cheek on this one but we’ve picked this title because it seems to be a pretty common activity and has some serious implications for your business. The scenario is this – you’re a creative entrepreneur running and growing a business, you’re in conversation with someone who is not a competitor but has the skills to help your business (a coach, mentor, potential investor etc etc). They want to get a handle on the current size of your business, the robustness of your income streams (or otherwise) and your profitability.

You have two choices … you can give them the rose-tinted version and make your company out to be a bit bigger, more financially successful than it is or you can tell them the truth. What are the pros and cons of each of these approaches?

Faking it – pros

  • (for a short while at least) the person you’re talking to offers you congratulations on your successes and you can bask in the glory
  • the person you’re talking to tells others how successful you are and this helps grow your reputation

Faking it – cons

  • More people will ask you favours because they see you as profitable and successful and they will ask for freebies, for you to spend your marketing budget with them, expect you to pay for dinner/drinks etc because hey you can afford it
  • You’ll have to keep up the facade in the sector and people will be watching how you spend money as a business and be comparing it against what they understand your (inflated) income to be. For an extreme example of this see high end fashion and contemporary art where the expectation is that everyone drinks champagne and dresses in designer clothing but if you pull back the curtain you’ll find that many are operating on a shoestring for everything except catwalk shoes and private views
  • When the people you fool find out that you’ve been lying to them their respect for you will fall through the floor and you’ll look stupid and worse you may not receive the help, investment and support that you actually need

Honesty – pros

  • the person you are talking to can help you work out whether their skills and network can be leveraged to support your business
  • you improve the way you articulate your business by practising it regularly on people
  • people don’t make errors in their assumptions about the stage of business that you are at so are less likely to offer or ask for things that are not useful/appropriate

Honesty – cons

  • if people thought you were bigger/more successful than is the reality they may be surprised and may see you differently in future, worst case they may underestimate you

So. if you’re still planning to fake it here’s a few things you need to know to do it convincingly. It’s not just about quoting a turnover figure that is higher than the reality (and we’ll assume you’re making figures bigger not smaller!). The turnover figure needs to connect credibly to the number of customers and the average spend per customer. So, if the turnover of your web design business is say £2m but the average sale is £10k and you have 40 long term customers it is clear that the turnover figure isn’t true because those 40 customers would have to buy five times a year …. it would be an inefficient business that bought 5 website designs a year.

Secondly as a business grows it tends to develop some kind of steady income so, in a £2m web design agency there should be a handful of clients who deliver perhaps 50% of turnover, another chunk who deliver 30% of business but these folks buy less often and the rest is made up of small irregular projects or starter activities that might migrate clients to larger projects later. So again, the question of how the turnover is made up sheds light on the actual turnover, number of clients and average spend so if these are not plausible then this too will call into question your turnover figure. By this point we hope that if you’ve been considering fibbing about your turnover you can now see that it requires quite a lot of effort and consistency to do so … is it really worth it?

 

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