Three Ways Women Can Overcome The Gender Gap In Small Business Financing
By Rohit Arora, Contributor
In past nine years, women-owned firms have increased by 45 percent, and employment by these companies has increased by 18 percent since the Great Recession. Additionally, business revenues among women-owned companies have increased by more than one-third since 2007. Today, there are estimated to be more than 11 million women-owned companies that generate more than $1.6 trillion in revenue.
Biz2Credit’s newly released study of women-owned businesses identified that annual revenues, earnings, credit scores and even loan sizes have gradually increased in a year-to-year comparison. Average annual revenues ($210,000) of women-owned businesses increased 47 percent in 2016, while average annual earnings ($117,064) jumped 61 percent last year.
Despite this, women still significantly lag behind their male counterparts as it relates to financials, confirming that a gender gap still exists, according to Biz2Credit’s new study of more than 25,000 companies. Businesses owned by men generated about 52 percent more revenue ($363,414) on average than women-owned businesses. Meanwhile, male-owned firms averaged $195,574 in earnings, accounting for a $78,510 differential between the genders.
Further, credit scores of women-owned firms (595) were 17 points lower than companies owned by men.
Among the encouraging findings of the study were the average sizes of loans of women-owned businesses. Female entrepreneurs’ average loan size was more than 28 percent higher than that of companies owned by men, an indication that they are investing more money in their firms. Women also started businesses at a faster rate than men with the average age of their business just under three years (35 months) with male-owned companies averaging 44 months.
A strong overall economy and low interest rates spurred women business owners to apply for credit. Women have been able to borrow larger sums of money to grow their businesses than ever before. Online lending portals have made it easier for borrowers to reach banks, marketplace lenders, institutional investors, micro lenders and other financial institutions willing to lend to women-owned companies.
Here are three elements that women entrepreneurs can leverage to build upon their success:
1. Continuously look for new opportunities
Mary Engelbreit, a graphic artist and children’s book illustrator once said, “If you don’t like something, change it. If you can’t change it, change the way you think about it.” This lesson can easily be applied to small business ownership.
In a country of opportunity, American entrepreneurs have many resources to succeed. Do some investigation. Learn about specific resources available for women entrepreneurs. For instance, the SBA highly encourages women-owned businesses to apply to be government contractors.
SBA Administrator Linda McMahon, the former CEO of WWE, also has a track record of empowering women entrepreneurs as co-founder of Women’s Leadership LIVE. The firm educates and inspires women through business ownership, career advancement, and pursuit of leadership opportunities in public service. Women entrepreneurs especially should have confidence in the support system of the government moving forward.
2. Know Your Numbers
When it comes to running an operationally sound company, perhaps the most vital part to your success is knowing and understanding your financials. Money talks. After all, consider why you are in business in the first place -- to make money. Know what it takes for your company to thrive and survive and develop a plan to serve as a guide.
“There are three key financial components entrepreneurs should must fully understand in order to run an operationally sound company – their net income statement, the balance sheet, and statement of cash flows,” writes Dawn Fotopulos, a serial entrepreneur and author of Accounting for the Numberphobic: A Survival Guide for Small Business Owners.
If you want to expand your business, try to improve your credit score by continuously paying bills on time and in full when possible. The benchmark is about 600, but it will improve your odds of securing financing if you can raise it. Building a history of timely payments is an important first step. Any creditor will want to know if you can pay the money back.
3. Ask Your Accounting Pro
Entrepreneurs are blessed with a vision and industry skills to succeed. When it comes to running a successful business, the last thing on their mind is to make sure the financial statements are in order and that the financials are up-to-date. Falling behind on financials and taxes can be catastrophic for a company.
Rely on your accounting professional. As an small business owner, it is important to understand that you cannot be an expert at everything. Many accountants offer their clients financial advice. If you already have a relationship built on trust with your accountant, you've already ahead of the game.
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