Financial Planning Advice for Female Entrepreneurs

American Express estimates that women create 1,800+ new businesses each day in the United States. Currently, there are nearly 13 million women-owned businesses in the U.S. that employ 9.4 million workers. Of these women-owned businesses, 21 percent are owned by African-American/Black women, Latina/Hispanic women own 18 percent, and Asian-American women own 9 percent.

While these businesses generate annual revenue of $1.9 trillion, it is no small feat to start and run a small business. Based on annual data from the Bureau of Labor Statistics, as reported by Fundera, approximately 20 percent of new small businesses fail in the first year, and only 30 percent remain in operation after the first decade.

So, how can a female entrepreneur thrive — and survive — in her start-up business beyond the first decade?

To help answer this question, I reached out to female entrepreneurs Wendy Rogers, director of Griffin Investments, and Janice Worth, president of Anushka Spa, Salon & Cosmedical Centre. We agreed that a good first step is to create a financial plan that incorporates three sequential stages of the entrepreneurial journey:

1. The launch phase (start-up),
2. The lead phase (growth management), and
3. The letting go (or not) phase (transition considerations).

Launch Phase (start-up)

Two common reasons why new businesses fizzle out after they launch are the overconfidence effect and cash-flow mismanagement. The overconfidence effect occurs when a person places greater subjective confidence in his or her own judgments than he or she otherwise would have as an independent observer of the same decisions.

Also, because there is often a blurry line between the personal pocketbook and the payroll ledger for a new entrepreneur, especially for a sole proprietor, the challenge to keep a close watch on income and expenses can sometimes be overwhelming. A recent survey by U.S. Bank revealed 82 percent of businesses fail because of cash-flow mismanagement.

Female founders may want to consider the following four steps when starting a business to ensure that the overconfidence effect and cash-flow management don’t impact their chances of success:

1. Keep your day job and gradually transition to your new business (this is an effective way to manage your cash flow in the start-up phase)
2. Invest in yourself (such as physical health, intelligence, emotional health, character, relationships, finances, career, etc.)
3. Pay yourself for your work (take a paycheck from your company), and>/li>
4. Establish and maintain good credit.

The Lead Phase (Growth Management)

To spur growth, it is paramount for business owners to ask themselves (and their employees) critical questions, such as, How can we continue to be a leader in our industry? and Do our strategic partners share our values equally?

Female business owners who inherit existing small businesses often find they cannot rely on what has worked well in the past to advance their companies to an even higher level. Instead, expansion now requires continuous innovation and the right employees who are not afraid of hard work.

Expansion may also include legal and financial hurdles. For more details on how to address these, check out this resource guide from the Small Business Administration.

The Letting Go (or Not) Phase (Transition Considerations)

McKinsey and Company estimates that American women will control $30 trillion in financial assets by 2030. That’s a staggering projection, but according to Yale University’s “The Science of Well-Being” course, money is not the most important correlator to happiness.

That is why, at some point, a prosperous business owner may face an important succession question: Is this what I really want to do at this stage in my life?

Women are naturally more collaborative than men when it comes to learning style. So when you are faced with this existential question and start to consider succession planning, collaborate with your CERTIFIED FINANCIAL PLANNER™ professional on all areas affected by succession — including business transition, tax planning, investment strategies and estate planning. Two networking resources for women business owners include the Association of Women's Business Centers and Women Doing Well.

If you are a female entrepreneur (or are interested in becoming one) and would like to collaborate further on a specific planning strategy, connect with a CFP® professional in your area today. More resources and articles on important financial topics relevant for women can also be found at the Let’s Make a Plan website.