Your A-Z Guide to Funding Your Woman-Owned Business
May 27th 2019
by Marcia Layton Turner
Finding capital to start or grow a business is challenging. But if you know the lingo of the financial community, you may be able to get a leg up — or at least uncover other sources of funding you weren’t aware of.
The following is WomensNet’s A to Z guide to funding, which is designed to help you find potential financing partners.
A – Amber Grant
WomensNet’s monthly $2,000 Amber grants for aspiring and current women business owners are one potential tool to launch your new business — or to fuel your company’s growth. One additional $25,000 grant is given each December to one of the year’s Amber Grant winners.
B – Bootstrapping
Since new businesses are typically cash-strapped, smart entrepreneurs work hard to keep expenses low. Instead of splurging on things like pricey furniture and fancy technology, they’re more likely to make do with what they have. That’s bootstrapping. The payoff can be achieving profitability faster.
C – Crowdfunding
Another source of financing is crowdfunding, as in using websites like GoFundMe, IndieGoGo, and KickStarter to announce a new product or business and offer incentives to individuals willing to make an investment. Those people willing to make a purchase are your potential backers, or funding partners. In most cases, the incentive is being one of the first to receive the new product once produced. On some platforms, the money raised isn’t released unless 100% of the goal is reached; it’s returned to the backers in that case. Other platforms forward all that is raised, even if it’s not 100% of the stated goal. The platform takes a cut for managing the fundraising campaign.
D – Debt
There are two basic ways to generate funding for a company: Debt and equity. Debt is when you borrow a set amount from an individual, group, or lending institution with a promise to pay it back with interest. Equity is the sale of ownership shares in your business, which you don’t have to repay. With equity, you effectively take on partners so that you don’t have to repay what you’ve borrowed. If and when the business is sold to a new owner, merged with another business, or goes public, anyone with an ownership stake reaps the benefit according to the percentage of the company they own at that time.
E – Executive summary (of business plan)
If pursuing a loan or investor is in your future, you’ll want to have a business plan ready to share. The first section of that plan is your executive summary, which should serve as a synopsis for what’s in the rest of the plan. Other sections of your business plan include a product or service description, management team, marketing plan, distribution plan, organizational plan, and financial plan.
F – Factoring
An expensive but effective way to fund business growth is through factoring, which is the process of selling your accounts receivables – the money your clients currently owe you – to an outside firm at a significant discount. The reason to do this is so you can get paid today rather than 30 or 60 days from now. The downside is that factoring is expensive and firms will only pay you a fraction of what you’re owed. You can get cash almost immediately if the client is a major corporation, but it will be far less than you’re owed from your clients.
G – Grants
While free money is scarce, other sources of grants for women business owners can be found using the tactics recommended here: https://ambergrantsforwomen.com/find-grants/
H – HUBZone
HUBZone is a Small Business Administration program that helps small companies located in “Historically Underutilized Business Zones” get preferential access to federal procurement opportunities.
Here is a list of current HUBZones: https://maps.certify.sba.gov/hubzone/map#center=39.828200,-98.579500&zoom=5
I – Investors
Investors are individuals or organizations willing to provide the capital a business needs to start up or expand its operations. Investors typically provide financing in exchange for an ownership stake in the venture – they become equity partners.
J – Joint ventures
A joint venture (JV) is a cooperative initiative consisting of two or more individuals or organizations that agree to work together for the benefit of those involved. JVs are common in the online world, when two experts agree to work together to create a new program that leverages both their strengths. Typically, the JV partners then split the profits.
K – Kickstarter
Kickstarter.com is one crowdsourcing platform where entrepreneurs can post product or business ideas and ask for financial support from the public. Kickstarter has positioned itself as the funding platform for more creative projects.
L – Loans
When you borrow money from an individual, bank, or organization, they are your lender. The money you are being lent must be paid back according to the repayment terms you agree to, which include how much you’ll pay, when, and for how long, on top of the interest you’ll pay for access to the money. The advantage of taking out a loan is that you retain ownership of your business, rather than selling ownership to outside investors.
M – Mentor
A mentor is someone typically more experienced than you who agrees to “take you under their wing” and guide or coach you to help you build a more successful business. Within corporations, mentors can become champions for their mentees, helping to smooth a path to promotion. In the small business community, mentors can be sources of referrals, new business, potential new hires, and problem-solvers.
N – Net 30 payments
Unlike retail businesses, where customers pay on-the-spot for their purchases, most companies receive payment after delivery of their products or services. The standard for many years was 30 days, or, in accounting speak, Net 30. However, in recent years, that standard has stretched to 45 and even 60 days, providing businesses more time to pay. That’s good news if you owe vendors money and potentially difficult when you’re waiting for payment. Which is why some organizations ask if you’ll accept a discounted payment if they pay you faster, such as a 5% discount if the bill is paid within 14 days.
O – Operating expenses
Operating expenses are costs incurred that help the business continue to operate. They are not directly associated with manufacturing of the product or services, however, and include costs such as employee wages, sales commissions, travel, and employee benefits.
P – Partnership
A partnership is a type of business where there are two or more owners, each of whom can share varying degrees of responsibility for the success or failure of the company.
Q – Quarter/quarterly report
While the IRS expects companies to report on their profits and losses on an annual basis, most corporations issue quarterly reports, which summarize the company’s performance the past three months. Most quarters end March 31st, June 30th, September 30th, and December 31st, at least for companies that operate on a calendar year basis.
R – ROI (Return on Investment)
The relative success or failure of a particular marketing strategy is often measured in terms of ROI. That is, what did I gain for a particular investment. For example, I bought a $10,000 newspaper ad – my investment – and what did that ad yield in terms of sales results. If you spent $10,000 and landed $20,000 in sales, your ROI is 100%. But if you spent $10,000 and only sold $5,000 you have a negative ROI of 50%. But ROI is only one measure of success.
S – Small Business Administration
The Small Business Administration (SBA) is the US government agency established to provide support and resources to entrepreneurs. The organization’s services range from free counseling, through the Service Corps of Retired Executives (SCORE), loan guarantees, and counseling, through Small Business Development Centers, to other related programs.
T – Trade/barter
One way to obtain the products and services you need is to propose a barter arrangement with another business, to avoid having to pay cash up front. In most situations, bartering is done on a dollar-for-dollar basis. There are also formal trade exchanges, such as American Barter Exchange and ITEX, that allow members to perform services for one client and receive a credit they can spend with any other exchange member. Exchange members pay a fee to belong and pay a commission for each trade that occurs between members. Barter can be cost effective if your business has sudden excess production capacity or dead inventory that you haven’t been able to sell at full retail.
U – Unemployment claim (something to avoid)
When an employee involuntarily stops working for you, meaning you fired or laid them off, they may be entitled to file for unemployment benefits through your state. The amount they receive that you are responsible for paying generally depends on how long they worked for you. The key thing to know is that even when you fire them, you may be responsible for paying their unemployment benefits. Check your state’s unemployment website to learn more.
V – Venture capitalist
A venture capitalist (VC), sometimes jokingly referred to as a “vulture capitalist,” is an individual or firm willing to invest a sizable sum of money in your company in exchange for an ownership stake. The expectation is that your business will generate significant profits quickly, once the VC’s money is invested. After three to five years, the VC typically sells their shares at a profit and moves on to a new investment. The entrepreneur then must contend with a new owner or the risk of shut-down if the company hasn’t been making acceptable progress toward growth and profitability.
W – WBE certification
Contractors and individuals that do business with local, state, or federal government agencies have incentives created by the government to give a portion of projects to woman-owned firms, also known as women business enterprises (WBE). So that the government can be sure that a business is truly owned and operated by a woman, it created a formal verification process, called certification. State agencies have a certification process and the WBENC also offers certification.
X – Exit plan
Many entrepreneurs establish and build companies to create an income source for themselves. Some businesses are built with the primary goal of supporting the business owner; these are generally considered lifestyle businesses. Since the company’s revenue is dependent on the services of the owner, there is no real value in the business without the owner. Standalone businesses, however, that can grow and scale on their own, can often be sold or merged with other businesses. Entrepreneurs who think about what the company might be worth in a few years are contemplating an exit strategy – how they’ll remove themselves from the business and get some money out of it. In addition to selling the business, the owner could merge it, hand it down to children or grandchildren, sell of patents or real estate, or shut it down and walk away.
Y – Year-end
Most businesses operate on a calendar year basis, meaning their financial, or fiscal, year starts on January 1st and ends on December 31st. So the companies’ year-end is the last day of the calendar year. However, many schools end their fiscal year on June 30th and government agencies often close out their year on July 31st. Knowing when an organization’s fiscal year ends can help your sales planning process, since some companies will have money they need to spend before “the end of the year,” while others may need to pay for new projects “in the new year,” which may or may not be in January.
Z – Zero-based budgeting
Zero-based budgeting is a technique to track your income and expenses and match them up at the end of each month or quarter. With a zero-based budget, your revenue minus your expenses must equal zero. That doesn’t mean you should try and spend every penny you earn, only that you need to assign each dollar a category. That could include salary, raw materials investment, or savings, for example. It also doesn’t mean that you’ll ever have zero dollars in your bank account, only that you know where every dollar is.