The size difference between women-owned businesses and men-owned businesses has been the subject of significant scrutiny. Despite the impressive growth of women-owned businesses in recent years, puzzling trends persist. Women-owned businesses often struggle to scale at the same pace as their male-owned counterparts.
Making a profit is not enough to run a successful business. Understanding and approaching finance from different perspectives can help the 12.3 million women-owned businesses overcome challenges.
According to the Bureau of Labor Statistics, 20% of new businesses fail in the first two years of operation, 45% fail in the first five years, and 65% fail in the first 10 years. . Only 25% of new businesses last more than 15 years.
One key strategy for increasing these numbers is to focus on business financing, especially as you expand and pivot your financial model.
Create a BAIL team
It is essential to surround yourself with people who support and guide you. However, if you want to scale your business, the BAIL team will be of paramount importance.
Senior Vice President Val Jones, Senior Lead Strategy Consultant at Wells Fargo, leads small business development for women-owned companies. She has seen firsthand the importance of this type of support team for entrepreneurs. She said: “The BAIL team is a team of experts who will help you get the right information to run your business successfully. B is for Banker. You need to build a relationship with your banker. This includes: I think there's a lot of surprise and confusion. Sometimes when I talk to business owners about this concept, they ask me, “How do I build a relationship with my banker?'' Why should I form a relationship with them? Well, you have to build a relationship with the rainmaker. Please be selective. Interview the banker. ”
The banker is followed by the accountant, and next comes finding the right insurance and insurance company. Finally, have the right lawyers and legal advisors in place.
Jones said: It shouldn't just be, “Oh yeah, that's that banker sitting there when I walk in, and I think this is the person I'm going to work with.” . That's your job. It's your livelihood. The BAIL team is very important to help you get the right information and expertise. ”
Focus on cash flow management
Most small businesses start with just one founder or manager and gradually grow to 10, 20, and more employees. As we progress through this cycle, we become increasingly disconnected from the sales and purchase sites of products.
Frank Hopson, a partner at Fortuna Advisors, has spent more than 18 years helping clients develop new approaches to creating value for stakeholders and shareholders through a cash-based revenue approach. He provides the following example: “You start storing inventory. You might start a new business and buy something. If you sell it right away, you'll see the difference in cash flow right away. But between when you buy things and when you sell things… When you start to see a disconnect and you're actually making money, you're trying to figure out what your actual value is to the company and when you're making money. Companies tend to run into problems. That’s trouble.”
For some companies, the reason for their failure is not what industry they are in. It's an organization's cash flow issue. You don't have the cash to pay your employees and suppliers while you wait for your customers to pay you.
“[As you scale] There's a bigger gap between when you pay for something and when the customer pays you,” Hopson continues to explain. “You start to move from a cash-based business, which most things are, to what is called an accrual business, where you are making a profit and profit is no longer just cash flow. Your profit means something different. It's based on when you actually sell, not when you receive cash. And within that framework, values change.”
Accurate accounting records help investors
Many small businesses start with the idea that they will someday find investors to help them scale. However, many founders get stuck with too many tasks to complete before they can assemble a team. This often means accurate accounting records are abysmal.
Dawna Boone, managing director and Atlanta market leader at Embark, advises clients on how accounting records can make or break a deal. “If you want to get investors, or if you want to sell the company at some point, they're going to want to have access to good, clean financial records,” she explains. “It's much easier to just go ahead and do it while building your business. Many small business owners may not have the bandwidth or ability to do that. They put accounting aside. Otherwise, we would completely outsource it and not look at it or review it.”
Most small businesses keep their records on a cash basis. However, many investors also want an accrual-based outlook that is consistent with how large companies report their financials.
“They need to know their income,” Boone concluded. “They need to make sure they know their expenses, they need to know their net income, their profits, how much money they're actually putting in their pockets. For some businesses, it's really important whether they're actually making a profit. is.”
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