By April Ulrich, Key4Women Chair, KeyBank
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In recognition of Small Business Month and in celebration of the 17th Annual Key4Women Forum, I wanted to share some eye-opening statistics about women in business.
Today, 56 percent of the workforce is comprised of women—who hold 50 percent of management roles.
Women are opening 1,072 net new businesses every day, and women-owned businesses employ 9 million people and generate $1.6 trillion in revenue. In fact, if you combined all women-owned businesses in the U.S. and made them their own country, that country would have the fifth largest GDP…in the world!
Clearly, women in business have come far. However, women are still prone to making the same mistakes when starting and running a business that business owners have been making for centuries. And the number one mistake I see among women-owned startups is overestimating initial sales.
The problem with overestimating initial sales is it often leads to a shortfall in working and permanent capital.
For example, let’s consider a retail start-up. In order to fulfill sales, the retailer needs to have a stock of supplies. In most cases, this stock needs to be paid for prior to sale to a customer.
What happens when retail start-ups overestimate initial sales is they overstock, and capital needed to pay employees, rent, utilities and other expenses, including advertising to grow the business, is tied up in product that isn’t selling. It’s no wonder, then, that nearly 50 percent of businesses attribute their failure to a shortage of working capital.
Here are four tips to help you avoid this financial mistake.
- Understand your reason. Why are you starting your business? To fill a void in the market, change your lifestyle, make a difference? Six in 10 Key Private Bank advisors say that when business owners first become clients, few know whether the goal of their business is to support their lifestyle or to reinvest back into the company for long-term growth. Knowing the type of business you’re operating is not only the first step to determining how you define success, but it is also critical to understanding how business decisions can impact your wealth in retirement.
- Know your pitch. What is your value proposition? Being able to articulate why your product and service will matter to customers, and sharing it with as many people as possible before you open for business, will give you a sense of how well it resonates with people and if they are willing to spend money for it.
- Create a business plan. Business plans are important because they allow for educated projections of future performance. Also, understanding the market and your competitors is a great way to forecast your first three years of sales and expenses. The Small Business Development Center (SBDC) and your local office of SCORE can provide guidance with research founded industry statistics to help with your business plan, especially with revenue projections.
- Build an advisory board. This one comes complements of Leah Busque, TaskRabbit founder and keynote speaker at the 2018 Key4Women Forum. Leah says tapping into your network to form a reliable group of advisors who can offer objective analysis and bring new skill sets where yours may be weak (technology, legal and financial are common areas) is critical. Start with who you know and trust as well as those with experience in your industry—make sure you have them sign confidentiality agreements. Organizations such as Chamber Women’s Business Council, Entrepreneurs Organization (EO) and Women’s Presidents’ Organization (WPO) can provide guidance and support.
Another thing to consider when starting your business is that good business doesn’t always mean a strong bottom line. Sometimes the most successful businesses go beyond the balance sheet and make having a broader impact on the community it serves a top priority.
In today’s world, consumers want to know that businesses as a whole are taking a stand. In fact, according to a global sustainability report by Nielsen, customers are 43 percent more likely to purchase a product from a company they know is committed to social value.
Being a socially responsible business will also add to your community’s vitality, improve customer loyalty and help drive employee recruitment and retention. According to Double the Donation, 79 percent of millennials said they consider corporate responsibility when deciding where to work, and 74 percent say their job is more fulfilling when they are provided opportunities to make a positive impact at work.
At the end of the day, there are many factors that contribute to a business’s success or failure. Due diligence and thoughtful consideration can go a long way toward establishing a strong foundation for growth.
Also, remember this: while much is made of the number of startups that fail, many succeed. For women, who have doubled the number of businesses they have founded over the past three years, this is good news. And it’s good news for the economy, because according to First Round Capital, women business founders outperform men by 63 percent in terms of creating value for investors.
About the author: April Ulrich is Key4Women chair and vice president, Business Banking, for KeyBank in the Capital Region. She may be reached at 518-859-6645 or April_J_Ulrich@KeyBank.com.