More Women ‘Leaning In’ by Learning the Ropes of Small-Business Ownership

Amidst the cultural rally for work/life balance-torn women to “lean in”—to continue pursuing their career goals and speak up for their needs—more and more women are deciding to do so on their own terms: by becoming their own bosses.

By becoming entrepreneurs.

And they’re doing it in record numbers. Between 2002 and 2012, women-owned businesses increased in number 2.5 times greater than the national average, according to the U.S. Small Business Administration, which hosted the United State of Women entrepreneurship summit in June.

November is National Entrepreneur’s Month, and today, women make up nearly 29 percent of all U.S. business owners. That brings the national total to 9.8 million women-owned businesses, said Solomon Wheeler, manager of the SBA’s Harrisburg branch.

“Fiscal year 2015 was a historic year for women in federal contracting,” Wheeler said. “For the first time in history, the federal government met the 5 percent women-owned small-business goal,” having loaned 5.05 percent ($17.8 billion) of contracting dollars to women-owned small businesses.

But before they could contribute to the $1.4 trillion in annual business revenues that women-owned businesses generated, and before they could employ more than 8 million workers, these women-owned businesses needed funding to get started—funding and a sound business plan.

Karen Christian, senior vice president of lending at Members 1st Federal Credit Union, has observed that women are often seeking business loans to purchase investment properties, restaurants, daycare facilities, and professional office space or equipment.

“Someone looking to start a business should perform very comprehensive research on the market and industry and develop a business plan,” Christian said. “Part of the planning should include a capitalization analysis to ensure the entrepreneur will have enough capital to operate and grow the business.”

Wheeler recommends having a minimum six-month cash reserve available to sustain you—covering both business and personal living expenses—before the business begins turning a profit.

“Regardless of gender, most entrepreneurs tend to be overly optimistic, especially when developing cash-flow projections and that sometimes leads them toward making the wrong decisions,” Sue Rising, vice president of marketing at Members 1st, agreed.

“One of these decisions could be leaving their [current] employment, thinking that the business will be making lots of money right away. It takes time to make money and be successful,” Rising added.

The SBA offers a variety of loan programs designed specifically to encourage entrepreneurship, with its most common being the 7(a) Loan Program.

To be eligible for a 7(a) loan, a business must: operate for a profit and in the United States; have reasonable invested equity; use alternative financial resources (including personal assets) before seeking financial assistance; demonstrate a need for the loan proceeds; use the funds for a sound business purpose; be free of existing debt to the U.S. government; and, of course, be “small” as defined by the SBA (see sidebar). This is a partial list of requirements.

Another loan program helpful for small-business owners is the SBA’s Microloan Program, which provides small, short-term loans up to $50,000 to help small businesses and certain not-for-profit childcare centers start up and expand.

The average microloan is about $13,000, according to the SBA, and can be used for working capital, inventory or supplies, furniture or fixtures, machinery, or equipment. Microloan proceeds cannot be used to pay existing debts or to purchase real estate.

Toward that end, real estate can be purchased with proceeds from the SBA’s Real Estate and Equipment Loans, or the CDC/504 Loan Program. These loans can also be used to fund the purchase of major fixed assets, such as equipment. In addition to other requirements, a CDC/504 loan applicant must have a tangible net worth less than $15 million and an average net income less than $5 million after taxes for the two preceding years.

Low-interest disaster loans are also available through the SBA to cover repair or replace real estate, personal property, machinery and equipment, and inventory and business assets that were damaged or destroyed in a declared disaster.

And the SBA offers mentoring and counseling programs tailored specifically for female entrepreneurs.

“Find a mentor or counselor,” Wheeler recommends. “The government offers a great deal of free resources and services to support small-business owners, both online and in person.”

Those resources include the SBA-sponsored SCORE Mentors program, which provides free and confidential counseling, mentoring, and advice to small-business owners via a network of business executives, leaders, and volunteers.

Small Business Development Centers provide management assistance, such as financial counseling and marketing advice; Women’s Business Centers offer business training and counseling with the unique needs of women entrepreneurs in mind.

Veterans Business Outreach Centers and Minority Business Development Agencies provide similar help targeted toward those groups as well.

There’s more to becoming a business owner than securing startup funds, of course. Women, especially, must carefully consider how their entrepreneurial leap will affect that ever-teetering scale of work/life balance.

Rising urges women to ask themselves hard questions: What sacrifices and compromises are you willing to make? What about the time commitment? And—do you have the necessary skills to run a business?

“Keep in mind: It’s one thing to be really good at what you do and be an expert at it when you’re working for someone else,” Rising said. “When you own and operate your own business, your name, your reputation, your product, and your brand is on the line, and ultimately, you’re the one who is held accountable for success or failure.”

Rising and Christian both recommend starting your business part time, if possible, and put off leaving your current job until you’re sure your business is going to be fruitful.

“Do the research and interview other businesses in the area where you are going or that are performing a similar service. Take your business plan seriously, research it well, and follow it,” Christian said. “What do you want your business to look like in three, five, or 10 years? Make sure you have the right amount of capitalization and a cushion to fall back on.”

A common pitfall both male and female entrepreneurs tend to make, according to Wheeler, is “failure to clearly define and understand your market, your customers, and your customers’ buying habits … How loyal are your customers to their current supplier? Do customers keep coming back, or do they just purchase from you one time? Does it take a long time to close a sale, or are your customers more driven by impulse buying?”

Rising noted that a strong marketing plan—a way to reach your potential customers—is vital and should include both online and digital exposure as well as face-to-face contacts that build personal relationships.

“Get out there and network; be seen and be involved,” Rising said. “You are the face behind your brand, your product, and your service. Be sure to measure the success of your marketing efforts and make adjustments accordingly.” BW

For more information on loan programs and mentoring/counseling services from the SBA, visit www.sba.gov.

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To be considered a “small” business, SBA size standards have the following general ranges:

• Manufacturing – from 500 to 1,500 employees
• Wholesale Trades – up to 100 employees
• Services – $2 million to $35.5 million in average annual receipts
• Retail Trades – $7 million to $35.5 million in average annual receipts
• Construction – $7 million to $33.5 million in average annual receipts
• Agriculture, Forestry, Fishing, and Hunting – $750,000 to $17.5 million in average annual receipts

There is an alternative size standard for businesses that do not qualify under their industry size standards for SBA funding. That alternative is that the applicant business (plus affiliates) can’t have a tangible net worth exceeding $15 million and average net income exceeding $5 million for the last two years. This new alternative makes more businesses eligible for SBA loans.

Source: Small Business Administration’s 2016-17 Resource Guide for Small Business – Eastern Pennsylvania Edition