Every year on September 22, the US celebrates American Business Women’s Day to honor the contributions and accomplishments of millions of women in the workforce and women business owners. The American Business Women’s Association is responsible for establishing this day and has been championing the efforts of women in business since it was founded almost 70 years ago.
Women who own businesses have come a long way since then. According to an American Express 2016 report on the state of women-owned businesses, there are 11.3 million women-owned businesses in the US employing nearly 9 million people and generating over $1.6 trillion in revenue. From 2007-2016, the total number of women-owned firms increased by 45% - a rate 5 times faster than the national average during a period that included a severe recession.
We salute women who have stepped into the role of entrepreneur and business owner, and we also recognize the personal and financial struggle required to make their vision and companies succeed. There’s a delicate balance between having enough passion and enough capital to grow an idea into a thriving enterprise. You won’t succeed unless you have both.
Everyone’s journey is unique and in most cases, your path to success will take several turns along the way. I talk from personal experience as I too started my own wealth management business about 11 years ago after having worked as an employee for 30 years. The firm my partners and I own and operate today is significantly different than when I began.
As women business owners, we face additional challenges that we may not realize. While women-owned firms make up one-third of all U.S. companies, the majority of them are small businesses operating in service industries. Growing revenue and accessing capital to start a business and keep it operating and thriving are ongoing concerns.
A recent eye-opening study by the Kogod School of Business Tax Policy Center shows our current tax policy puts small service firms at a disadvantage because most are not incorporated or do not have capital-intensive investments—the types of tax incentives targeted to help small businesses grow. Since many service firms are owned and operated by women as sole proprietors, they are excluded from these specific small business tax-saving benefits.
Even with these challenges, there are many smart financial moves that women entrepreneurs can make along the way, especially when it comes to maximizing potential tax savings or using capital efficiently. I thought I would share some of my personal experiences and strategies to help empower women entrepreneurs in much the same way that Her Wealth® empowers women with financial confidence and resources to take control of their money and wealth.
Starting your own business comes with some serious personal and financial risks so before becoming your own boss, review your family’s finances very carefully. Make sure you have separate savings built up to cover your personal living expenses for at least the next 12 months to give yourself a financial cushion. Take the time to ensure you have the full support of your spouse or partner and close family with a clear agreement on the financial resources needed for both your personal and business cash flows, as well as what sacrifices may need to be made financially. Being realistic about your financial tradeoffs and time commitment as you launch your new business is critical for you and your family’s success.
When I started my wealth management business with my first partner, we did a lot of advance planning, created a detailed business start-up checklist, enlisted the services of specialists and divided the many tasks on our never-ending checklist between each other. Be prepared for what likely will be many long and stressful hours in the early stages. Stay organized and set up your infrastructure properly from the get-go so you can focus on building your business venture with fewer distractions.
As I mentioned earlier, the tax code may be stacked against many women business owners simply because they are not incorporated or tend to operate in service industries. Even so, you should take full advantage of any tax savings that you can. To do this, you’ll need to have a solid accounting system in place and someone who understands the importance of accounting for your daily business activities. Most CPA firms offer small business accounting and bookkeeping services. You should always consult your tax advisor regarding specific tax strategies, but here are some tax techniques to consider:
Many business owners struggle to separate their business from their personal finances. Having a good accounting system with proper internal controls and monthly financial reports can make this much easier to accomplish. This is also critical for tax compliance, managing your business cash flow and securing future capital.
From my perspective as financial advisor, another benefit that comes from having a good handle on your business expenses and profitability is to ensure that you don't sacrifice or risk too much of your net worth on your business. That can be difficult in the early days when profits tend to be zero or negative.
This is when a good advisor or business consultant can help give you an independent assessment of the success of your business, and how best to leverage your personal assets without overdoing it. Successful entrepreneurs frequently need more capital along the way to fuel growth, so it’s common for our clients to ask for advice on how to deal with temporary cash crunches in their business.
Women-owned firms face an uphill battle when it comes to raising capital. Research indicates this is why there’s a predominance of women owning businesses in service and retail industries where start-up capital is less important. Since adequate capital is a leading indicator of long-term success, this is one of the most important areas of managing your business.
One way savvy businesswomen sidestep this battle for capital is by leveraging personal assets. If you take this route, you aren’t alone. For both start-up and expansion financing, women are more likely than men to use personal and family savings. In today’s low interest rate environment, using a margin line on taxable investment accounts, or leveraging home equity through a home equity line of credit (HELOC) are common strategies. These methods of harvesting the value in your personal wealth require analysis and a clear understanding of the pros and cons. You should consider how each strategy could potentially affect your overall level of risk and the long-term effects on your net worth.
If you’re considering the use of margin, you’ll need to know the current valuations in the equity and bond markets, or the value of your home when considering a HELOC, and the prevailing interest rates. Both of these strategies should be employed only after understanding what additional monthly cash flow would be needed to pay ongoing margin or HELOC interest charges. If you are unfamiliar with the pros and cons of using margin, I recommend that you read How To Make A Margin Account Work For You.
Another way to leverage personal assets to raise business capital is to use those assets as collateral for a Small Business Association (SBA) loan. If you’re considering that option, be aware that a 2014 report prepared for the National Women’s Business Council found that even though women own 30% of all small companies, their businesses account for only 16% of conventional small business loans and only 17% of SBA loans. If you have an existing business, you may be able to utilize assets such as equipment, buildings, accounts receivable, and inventory as collateral for an SBA loan.
While having access to and employing capital strategically is critical, having the right advice at the right time is invaluable.
Since 90% of women-owned businesses operate without any employees, women business owners are doing more themselves. With this challenge of leveraging personal time and talents to run the business singlehandedly, businesswomen can find the assistance they need through outsourcing and part-time help. These options save money in the near term and allow you to try out professionals before making a longer-term commitment. Outsourcing also provides much-needed flexibility to change as the business progresses through the milestones of a startup to a more mature business.
Another strategy for finding resources is to utilize the assistance of business organizations whose mission is to support women-owned businesses. National Association of Women Business Owners (“NAWBO”) and Her Corner are great places to go to learn from other women owners who are in different business stages and have gone through growing pains.
Now in its 42nd year, NAWBO was one of the earliest non-profit organizations designed specifically for women. With chapters across the country, NAWBO supports the economic success of women entrepreneurs and works to impact women-related social and political policies.
Her Corner works with existing businesses as “An Accelerator for Women Entrepreneurs.” With chapters in Washington, DC and Philadelphia, women find community with other owners and are supported with educational and mentorship opportunities.
Another suggestion is to form an Advisory Board of other professionals who are willing to mentor you, give honest feedback and provide introductions to expand your network. With the increasing rate of women entrepreneurs, I have found that women are more than willing to help each other. At Her Wealth®, we established an advisory board to help us build and grow our mission and their advice and connections have been invaluable.
Owning a business can be very gratifying. It can give women the flexibility they need to balance their work and family life, have an ‘encore career’ after retirement or to fulfill a passion to create something of their own. Regardless of why you start a business, your success depends on knowing and understanding both your personal and business financial resources, assembling the right team to advise you and taking advantage of the support and encouragement you’ll need from other women entrepreneurs.
Consider this your training manual to get and stay financially fit for life!