Five Common Financial Mistakes Women Business Owners Make and How to Avoid Them

Owning your own business is certainly exciting. Entrepreneurs get to experience rapid growth, see their ideas come to fruition and wake up every day to the work they love. Too often, however, they get caught up in the big picture and lose track of one of the most important aspects of business life—the financial picture. Here are five common mistakes women business owners make in this area of their business and how you can avoid them.

1. Failure to plan. Like the wise saying goes, “If you fail to plan, you plan to fail.” It’s especially true for women-owned businesses. Fewer than 10 percent of all businesses—both new and established—take the time to create a plan. Your business plan is your overall blueprint for success and a financial plan is an important part of that. Your plan should include income, expenses and overall cash flow forecasts. Companies most often fail because they have no plan to measure progress against and don’t see roadblocks coming.
2. Not managing accounts receivable. Small business owners are consistently challenged by accounts receivable. You know your customers are going to pay you, however, it may take 60 or 90 days for them to do so. The challenge is that your vendors want to be paid within 30 days. Obviously, planning and budgeting make managing this process easier. You’ll also need to make collections calls. Despite your efforts, particularly in the current economy, you may still not get paid. Another option is Accounts Receivable Insurance that gives you more leverage. After an account passes 60 days, it gets turned over to the insurer, who handles it from there.
3. Making personal guarantees. Business owners should, if at all possible, avoid personal guarantees. While banks advocate for them, as an entrepreneur, you’re already investing a huge amount of your personal assets into your business. If you have trouble getting financing, look into other options and evaluate your current plan and approach. It may save you from financial—and personal—trouble down the line.
4. Doing everything themselves. When you’re starting your own business, relying on your family and friends is a natural inclination. Remember that you get when you pay for. Find people who know the business and have experience with small companies. Check with your fellow NAWBO members for leads or referrals on someone who has worked with other women business owners. “The single biggest mistake that I see women business owners make, is not securing a really good accountant and business financial advisor,” says Carla Bainbridge, President and CEO, PredictiveProfiles. “Pay the extra money, and do not chance on this necessity.” Small Business Builder Maria Marsala, Elevating Your Business agrees, “Not asking for help because “we know what to do” or trying to do it all is a huge mistake. Get good help upfront.”
5. Avoiding a working knowledge of financials. While hiring a team, in-house accountant or meeting with a CPA is important, it’s still key that you have an understanding of your finances. Knowing the basics allows you to monitor your progress in between sessions with your financial counselor and puts you in a position to spot any problems should they arise.

     

Beyond that, many business consultants and financial planning corporations state that women business owners who appropriately charge their clients are far more successful and generally avoid these other mistakes. “The biggest “mistake” women make is simply not giving themselves enough credit in the first place. They come across as tentative rather than in control," says Joy Johnson Success Center Director. “This affects how they are perceived by professionals, vendors, customers and bankers. Lack of self-confidence can be costly in too many ways to enumerate.” Angela McLain agrees, “I see a lot of my female clients not charging what they are worth, decreasing their price on a service when the client balks and most importantly, continuing to do the work they aren't getting compensated for.” She adds, ”I spend a fair amount of time imploring my clients to “stop-work” and collecting their funds from their clients. All of those providing a service, no matter the gender, should draw a harder line on stopping production when due funds aren't received in a timely manner.”

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