A Pathway to Increased Cash Flow and Better Business Health
When you’re a woman business owner, it’s not accidental that you meet and connect with other women business owners. You get to know their stories. Their wins, their struggles, their strengths and yes, even their losses. The women I encounter range from startups to women who are in the rebuilding process to the magical women who are earning over $1M in revenue annually.
What’s true for many women starting out in business is that they are self-funded. Women cash in their 401ks, they use their personal credit and sometimes family and friends pitch in.
You see, the number of women starting businesses may have doubled over the last 20 years, but access to capital is still an issue. A woman I know recently applied for a business loan. A fund was set up here in Houston after Hurricane Harvey and small businesses were encouraged to apply for funding. Regardless if you experienced direct damage or not. The loans ranged from $10K to $25K. This woman had a perfect credit score and had been in business for a number of years. Still, the organization suggested she have her husband cosign the loan. It’s not even his business.
Where Women Tend To Fall Short
According to the 2017 State of Women-Owned Businesses Report commissioned by American Express, there are a number of factors that keep women-owned businesses from getting funded.
First, women on average have a shorter business track record. 56 months versus 62 months for male-owned businesses. And secondly, women tend to have lower credit scores than their male counterparts. The average credit score for women-owned businesses last year was 598. Up from 595 in 2016. The average credit score for male-owned businesses during the same time period was 618.
Associated Press writer, Joyce M. Rosenberg spells out exactly why women aren’t getting the loans they need in her article, Women business owners still struggle to get loans. She sites lack of cash flow, uncommon business structures, and an overall ill-preparedness when approaching a banker. Rosenberg does offer some encouragement. There are other funding options available to women even if you’re not a tech company. Here are 10 funding resources to consider.
This self-funded start to a business typically means that the business is running extremely lean and the business owner and her employees are fulfilling multiple roles. It’s not uncommon for a business owner to be the CEO, the HR department, the bookkeeper, the salesperson, the marketing department and the janitor.
But this running lean model is not one that can be sustained long-term. Growing your business past this lean startup stage requires a strategy and some creativity.
Pathway to Increased Cash Flow
I was having lunch with a friend and she told me about a man who is generating millions of dollars in his business. Cash flow is not a problem. So much so, when it came time to make a very large purchase for his business, he paid cash. My friend was livid! Even retelling the story she turned several shades of red! She had to educate the young business owner that major purchases are always financed! You hold onto your cash! It is the lifeblood of your company.
So how do women business owners create a pathway to increased cash flow?
- Review your budget – Define your main expenses and monitor them. Look for ways to reduce those expenses or at least delay them. Paying electronically the day they’re due keeps cash inflow longer.
- Lease/Finance Purchases – We already know women business owners run into challenges when it comes to getting funding for big loans. We tend to pay higher interest rates and get less than the amount what we asked for. But smaller items, computers, office equipment, tend to be easier to attain. Spreading small payments over time will help you hold on to your cash and can help build your business credit.
- Form Buying Co-ops – Pool your resources with other small businesses to get a bigger discount because you’re buying in bulk.
- Increase Number of Customers – Here’s how you can successfully do so.
- Shorten Sales Cycle – Because of the product or service offered, some businesses have extremely long sales cycles. I know one business who has a lead time of nine months. Marketing automation and chatbots can help shorten the cycle by responding quickly to customer inquiries. An improved marketing strategy can also add to your cash flow.
- Ask For the Payment Early – Offer a discount to customers who pay their bills ahead of time.
- Review Your Inventory – If you’re housing product that’s no longer selling, sell it at a discount to generate more cash.
- Revisit Your Pricing – There may be an opportunity to increase pricing on items where you’re charging below your industry standard.
- Collaborations/JVs – I’m a firm believer in collaborations. You can increase your cash flow and grow your business by partnering with the right company. Where do you and another business have synergy?
Pathway to Better Business Health
With a better cash flow, your business is on its way to better health and you can:
- Release a few of those extra roles you’ve taken on
- Hire the right people to help you grow your business
- Better position yourself in front of bankers and investors