By Leah Arnold, CFP
During an interview last week, I was asked what some of the top mistakes women in business make when they’re starting, when they’re growing, and when they’re mature. It was a great question, and it made me remember a particular class session of our Academy series in February of 2008, where we addressed some of these issues. It also reminded me how reticent female entrepreneurs can be to ask for help.
So, it made perfect sense to lay out the most prevalent mistakes (or issues) I see with my clients, and how to avoid them. If you have others you think should be here…feel free to chime in with a comment, and let us know!
1. Trying to ‘do it yourself’ when it comes to tax, legal, and financial planning. Get good help upfront. You are the expert at what you do, and that’s as it should be. But surround yourself with an experienced team of financial, legal, and accounting experts. That doesn’t mean you need them all year long – but when preparing to start, grow, or sell a company, you need strong, solid help behind you if you want to succeed. A good advisory board of professionals who work together – and are allowed to share your information between them – can save you loads of time, frustration, and money down the road, and will often develop into an ‘advocacy board.’
2. Being afraid to charge what you are worth. If you provide a needed good or service, know your value and what the market will bear. Time and again I hear from my clients that they want to reduce prices for one client or another because of what’s going on in that client’s world. This is business, ladies. Leave your emotional tendencies at home when making business decisions. If you can’t afford to do it for everyone, don’t devalue the product or service you provide.
3. Mixing personal and business finances. Yes, I know…it’s so hard not to do when you are starting up. The problem with this mistake is that the ramifications can be profound years down the road. Many women start their businesses with personal credit cards, IRA’s, and 401(k) money. As the business grows, you put your money back into the business, leaving all of your wealth in the business. When you are ready to retire, you realize your business is illiquid, and that the business must be sold / transferred as a whole for value. In other words, you can’t look at the machinery and say “that’s my 401(k), and I’m taking it with me.” Always try to finance your start up or growth through lending or grants. If you cannot, it is imperative that you take steps to pay yourself back as your organization begins to yield profit. Utilize smart financial planning techniques to move your money back to your personal balance sheet without affecting cash flow or productivity.
4. Undercapitalization. Underestimating expenses and overestimating revenue is a business killer. If you think you need 6 months of start up expenses, have at least 12 months on hand when you start. One of the things I love to work out with my clients is how to factor in the first years worth of loan payments into the loan! Also, banks – if they’ll lend the money – want to see you succeed. When I started my consulting business, I was lucky enough to work with a great banker, who gave us a loan with no payments for the first six months. Your banker should be one of your closest advisors – talk to them, develop a relationship with them, and be realistic in your planning and expectations.
5. CYA – Cover Your Assets – Pt 1. Many businesses are woefully under-insured. If your business burns down, or is struck by lightning (pick your calamity here), how will you pay the bills until you can rebuild? Most business and property insurance does not cover this. There is insurance that will replace your lost revenue in the event of catastrophe or damage to your business.
6. CYA – Cover Your Assets – Pt 2. Your employees – and the historical and customer knowledge they have – are assets. Have tight employee and/or IC agreements, and perhaps most importantly, Employee Liability insurance.
7. CYA – Cover Your Assets – Pt 3. Your intellectual property can be more valuable than storefronts and equipment. Protect it, and work with a good attorney to properly plan for, and protect, the growth of your brand and trademarks, patents, etc., associated with it.
8. CYA – Cover Your Assets – Pt 4. Partnership agreements are critical, particularly early on, during the ‘honeymoon period.’ Though a business may start out small, eventually, it can grow into an operation that employs many. There are 4 ways a partner or owner will leave the business – corporate divorce, disability, death, and straight up departure. Define early on how your business will handle each possibility with a good attorney. Also strongly consider having disability insurance and provisions put into the partnership agreement, and terms for buy-out or dissolution.
9. Lack of Succession and Estate Planning. Do you have a buy-sell agreement for your partnership? If the worst happens, how can you guarantee your family/heirs will receive fair value? Or, in the reverse, provide funds to buy out your partners’ family, rather than be in business with the spouse and/or children? Additionally, as your business grows, should you consider giving nonvoting shares to the children, freezing your estate, and limiting your estate taxes? These are just two of the very serious issues that have a profound effect on your business and your estate.
10. Handing Over the Purse Strings. For those who have gone into business with a spouse – or married into a business – one of the top issues I see with my clients is women handing over all financial decisions to the spouse – or being too timid to question where the money is going. I cannot count for you the number of women who come to me once a divorce has begun because they have discovered that the money has moved, and that she has no relationship with her husband’s advisors. It is imperative from a financial stand point to harness your own relationship with your own advisor – even if your relationship is very solid. You’ll either be happy, or you'll be right.
Leah Arnold is a Certified Financial Planner, founder/lead mentor of The Academy of Strategic Business Soultions, a renowned public speaker, and an expert advisor / planner for women in business.