Financing your Plans, Planning your Finances
Women sometimes have their personal and company finances mixed up. It is important to separate the two, both because you need accurate accounting and because there are times when you need to disengage from your business - say in the case of a lawsuit, bankruptcy, sale, or audit.
Honesty, transparency, and meticulous record-keeping are a fact of life for the successful woman-owned business. Here are some steps on to make it happen:
Convert your company into some other status than a sole proprietorship. Sole proprietors can sometimes be aggressively targeted by the IRS because of their reporting. The September 2009 report by the Government Accountability Office reported that sole proprietors are estimated to have underreported their net income by 57 percent or $68 billion in 2001 (the most recent year where data was available), and that sole proprietor tax returns included "substantial misreporting" of both gross income and expenses. Underreporting is a red flag for an audit. Limited Liability Companies and S-Corporations require more stringent reporting, and force you to separate your bank accounts - thus cutting down on the chance of co-mingling funds.
Lock down your credit lines. If you are in trouble financially, and your annual income just isn't enough to cover your expenses, the first inclination is to dip into your available credit. This can create problems with your personal and professional finances. It is best for you to have separate lines of credit - one for you and another for the business. If you have incorporated your business as an LLC or S-Corp, the business can incur the debt instead of you. If you have already dipped into your personal line of credit, and are finding it difficult to get yourself above water, consider these tools: credit counseling, a debt consolidation mortgage, or sharing networks such as LendAround or Kiva.org to get short-term loans.
Make it profitable. If your business, regardless of how it is incorporated, is not profitable, make changes. Pivot, regroup, reassess, reorganize. Don't just sit around waiting for something to save you. Take steps in a new direction. Remember, once a ball is rolling, it will continue to roll until it is acted upon by a force as powerful as the motion itself. Once your ball is rolling, it’s easier to edit or change your offerings to fill specific needs. Expand your target addressable market to be large enough to sustain your company. If you know what your company needs to survive, make that target number your immediate goal, then work in your longer-term goals.
Remember to pay yourself first. Commit to either a regular paycheck from the business, or a fixed set of draws that you will take from the company on a regular basis. Out of that, make sure to save some for your rainy day fund, emergency fund, or retirement fund. When we get in the habit of paying ourselves first, we have a set priority and have the self-respect, self-determination, and drive to pay off any creditors.
Reinvest what you need into your company. Purchase additional stock, do a capital investment, or give a loan to your business to make sure it has the equipment, infrastructure, and support needed to grow and thrive. A computer-based business needs excellent, functioning computers. A housecleaning business needs a full set of supplies. A retail store needs fantastic inventory. Understand that the business will grow when you feed it, and eventually it will come back and feed you.
Be smart about expenses. Cut unnecessary costs, find a do-it-yourself option, and be more aware of how you are spending money. Can you participate in the sharing economy by doing ride-sharing, car-sharing, co-working, sharing nannies, or purchasing from a CSA? Can you work out of a retail front in partnership with someone else? Can you share office equipment like printers and fax machines with a neighboring company? Your challenge is to keep high standards of quality but also find the most value - we recommend you search the GreenBusinessWomen.com directory for some other women who are committed to success and going green.
Many women go into business to earn as much as they possibly can, based on their skills and talents. Realize that not every business is successful, but the ones that have a higher probability of succeeding are the ones that have a clear financial reporting system in place.