Women-Owned Businesses: Learn These Lessons Now and Watch Your Business Grow
The 2019 Women’s Business Report held lots of exciting news for the future of women-owned businesses – and also a few lessons for those women who are starting or growing their businesses now while planning to pursue traditional funding in the future.
One piece of good news is that women-owned businesses are growing quickly, and that many of them are pursuing traditional funding. Due to the optimism generated by the strong economy in 2018, women business owners who had previously held off on applying for funding for capital improvements or expansion assessed that 2018 was a good time to borrow.
However, despite the fact that 13 percent more women-owned businesses applied for funding in 2018, the amount of funding they received went down. While it’s a great sign that more women-owned businesses are pursuing traditional funding as a means to grow faster, the fact that they’re getting less money is less than encouraging.
Only 2% to 3% of all venture capital financing is granted to women-owned businesses. This is partially because of some of the differences in the way women approach their businesses vs. how men approach their businesses. If you’re a woman who would like to pursue traditional funding at some point, now is a great time to take these 3 lessons from the 2019 Women’s Business Report and ensure that you’re optimizing your odds of achieving it in future.
1. Pay Attention to How You’re Bootstrapping Your Business
The way you choose to bootstrap your business can impact both your personal credit score and your business’s ability to access traditional funding. Traditional funders will use your personal credit score to assess risk, and a lower credit score can impact your ability to access funding.
Choosing to bootstrap your business with your credit card may feel like an obvious solution to what will clearly be a short-term cash flow crunch, but be careful about its impact on your credit score. Women often have lower credit scores than men because of the wage gap and because they have higher amounts of student loans that they’re paying off. Add to that the pressure of credit card debt from bootstrapping their businesses, and women business owners are dealing with a triple whammy regarding their credit scores.
So pay attention to how you’re using credit when you’re bootstrapping your business. It may feel like an easy way to get started, but if it’s adding to the pile of debt, use your cards carefully.
This isn’t to say that using your credit card in a pinch isn’t a viable solution, but do so cautiously, and only after you’ve assessed the potential long-term impacts to your credit score. Being able to do this effectively will require more than a quick glance at your bank and credit card statements. To assess risk, you’ll need to get comfortable with financial literacy, which brings us to the second point from the 2019 Women’s Business Report.
2. Develop Financial Literacy
Society allows women to operate in financial ignorance, which isn’t good. It’s especially bad when you’re running your own business. As a responsible business owner, you need to understand not just your personal finances, but your business finances, too.
You should know everything about your business – from your product or service to your sales to your marketing, operations, and finances – all better than anyone else, including your accountant. Having a clear understanding of every aspect of your business, especially your financial side, will probably be a steep learning curve, but you can make it happen.
Carve out time to dig into the terms you don’t understand and keep researching until you feel comfortable enough to explain them clearly and concisely to someone else. Your accountant may be willing you walk you through certain details. Either way, Biz2Credit’s blog has a lot of great articles to help you wade through what may feel like an overwhelming amount of information right now. Here are a few good ones to get you started:
What You Need to Know About Filing Your First Small Business Tax Return
Keeping Personal and Business Expenses Separate: A Guide
Understanding Business Credit Scores
3. When You’re Going for Traditional Financing, Know All Your Numbers and the Goals Traditional Financing Will Help You Reach
Beyond just being financially literate, you need to understand all your numbers. This means your past and present revenue, your expenses, future sales, operational overhead, the changes (both good and bad) to your business viability, and your cash flow. You need to know what you’ll be using your future financing for and how it will help you achieve your business objectives.
Knowing your business numbers and goals is critical not just for securing traditional financing, but also for running your business effectively. Take the time to go through your numbers on a monthly basis and to build a cash flow chart so you can look back and identify behaviors that caused issues. Forecast your future realistic revenue and make your major financial decisions only after reviewing your cash flow chart next to your current assets and expenses.
Doing this won’t be fun, and it won’t necessarily be easy when you get started. But the ability to keep your finger on the pulse of your business will make you more successful in the long term – and it will make accessing traditional financing easier. Having an accountant isn’t an excuse to hand over the responsibility of understanding your business.
Running a successful business as a woman involves a steep learning curve, especially for those who are pursuing traditional financing. But once you put the time into developing a deep understanding of your business, you’ll be able to not just secure traditional financing but pursue opportunities and take risks that your less savvy competition will not.
Knowledge is power. Know your business inside and out. It’s well worth the effort, as the 2019 Women’s Business Report shows.