For entrepreneur Jennifer Piette, self-funding was the natural way to get her curated food box delivery business off the ground. But like many entrepreneurs, there came a time when she had to go beyond bootstrapping to scale and grow—and seek outside financing.
It’s not always an easy process for women owners: Loans to women-owned businesses in 2021 were 33 percent lower on average than those given to businesses owned by men. And only 2.2 percent of venture capital, the equity financing that jumpstarted many of today’s most innovative companies, went to women-owned startups.
Piette, the CEO of award-winning Narrative Food, recently joined three other small business experts to talk about the top dos and don’ts for women entrepreneurs looking to access capital.
DON’T MIX PERSONAL & PROFESSIONAL (ACCOUNTS)
Many entrepreneurs start by bootstrapping their businesses with money out of their own pocket or from friends and family. It can show potential partners how truly invested an entrepreneur is in the business. But it also comes with the risk of papering over long-term issues with short-term solutions.
“If you’re facing a month of shortfall, and it’s just this one time, maybe you draw on some personal savings to keep yourself afloat,” says Sara Razavi, CEO of Working Solutions, a Bay Area-based Community Development Financial Institution. “It’s very understandable, especially for smaller businesses who are highly cash flow reliant. But if it’s ongoing for multiple months, or a year or two, it’s helpful to realize ‘I probably need some financing support.'”
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Entrepreneurs can more easily recognize a pattern by avoiding co-mingling funds in a single account. By opening a business checking account and making a first investment into that account, even if it’s from your personal savings, you can separate the business from the personal from an accounting perspective and aid your bookkeeper whether you have one now or down the road. Establishing a business relationship with a bank can also help you access credit in the event of an emergency or even for new equipment purchases while enabling you to build a business credit history.
DON’T WORRY ABOUT KNOWING THE LINGO
Entrepreneurs know how to make, market, and sell their product or service, but they don’t need to be finance pros. But being less confident about using accounting terms can lead them to needlessly avoid financing.
“Knowing finance terms is not needed,” says Razavi. “Please, please ask questions. It’s not going to undermine our understanding of your capability.”
Whether it’s asking for the textbook definition of cash flow or the exact language of balance sheet statements, the right finance partner won’t be turned off by an entrepreneur with questions about finance lingo. In fact, they should be happy to introduce you to the terms you need to know.
If you prefer to do some homework in advance, there are plenty of ways to do a crash course in business finance. Many small business education and training resources are available through small business development centers, financial empowerment organizations, community colleges, and start-up accelerators and incubators.
DO KNOW YOUR CURRENT FINANCIALS INSIDE AND OUT
“Know your business today,” says Razavi. “Where do you stand, and what kind of capital are you seeking?”
Entrepreneurs should understand the current and upcoming needs of their business in the context of the current business climate to assess what kind of financing they need and be better prepared to secure it.
A business plan with a cash flow forecast helps lenders understand an entrepreneur’s business objectives and vision for the company, according to Roxann Burns, Small Business & Medium Enterprise Group Credit Manager at Bank of the West.
“You need to have a balance sheet, an income statement, and a debt repayment schedule,” she says. “The business needs to demonstrate, with reasonable assurance, that it can make the loan payment every single month.”
DO START GROWING YOUR NETWORK EARLY
For entrepreneurs interested in equity financing, the power of networking is invaluable, says Victoria Pettibone, CIO & managing partner at venture capital firm Astia.
“So much of this is about relationships, so building a network early on, before you’re even ready to fundraise, is important,” says Pettibone, whose 20-year-old firm invests in and advises startups that include women leaders.
She recommends that entrepreneurs focus on growing their community so they can leverage those relationships when their business gains traction. Personal introductions can help entrepreneurs break through the inevitable “nos” they’re likely to hear as they first begin pursuing venture capital. But the value of community also holds true for entrepreneurs accessing capital in different ways.
In the case of Piette, Narrative Food’s Certified B Corporation business model comes with a built-in community that she’s found hugely beneficial. B Corps are businesses that meet high standards for positive impact on people and the planet.
“I’m part of a group called WeTheChange, which is all women B Corp CEOs,” she says. “I can’t tell you how supportive and meaningful that has been, from hiring people for my team to doing a WeFundraiseNow campaign where so many people contributed.”
DO GET FINANCING BEFORE YOU NEED IT
“A lot of business owners look for debt financing when they’re a little strapped,” says Burns. “Seek funding before you completely run out of cash.”
Consider pursuing financing as soon as you have a strategic plan for what you’ll do with it. Potential financial partners tend to prefer a clear, forward-looking understanding of a business’s working capital needs to an entrepreneur just trying to make it to the next month.
Plus, getting financing is never quick. “Do debt financing before you have an immediate need because it’s not as immediate as, say, a revolving line of credit like a credit card,” says Razavi.
The typical review process involves the lender evaluating your business based on the 5 “Cs” of credit:
1. Character: credit history
2. Capacity: debt-to-income ratio
3. Capital: current money available to invest in the business
4. Collateral: any asset to back or act as security for the loan
5. Conditions: plans for the loan, amount, and interest rate environment
Finding the right finance partner may also be a multi-stage process. Some entrepreneurs approaching a bank may be referred to a CDFI such as Working Solutions with expertise in making micro-loans and then graduate to a bank or on to venture financing. Bank of the West often works closely with partners in this way.
“I think it’s absolutely awesome to seek a number of small loans, especially from a CDFI before you get to a bank,” says Burns.
DO UNDERSTAND THE VALUE OF FINANCE PROS
When your business has evolved from startup to maturing, paid advisors can be a valuable resource, albeit one that comes with costs. But many small business owners aren’t sure where to start.
“I generally think accountants are really, really helpful in helping you keep your books and navigate taxes,” says Burns. Accountants can also be great resources for answering financial questions, from demystifying the lingo to explaining best practices. All of this matters when it comes time to approach a lender.
Entrepreneurs behind large or fast-scaling companies may consider bringing on a consulting Chief Financial Officer (CFO) on a non-permanent basis simply to help think through higher-level financial and operational strategies. Consider putting out the opportunity to your network. For cash-strapped startups, offering an advisory title in lieu of money can be attractive to those with the right expertise who want to burnish their credentials.
“A CFO can help you think through the financial strategy and how you fund operations at a time when maybe you don’t have all the capacity to do it yourself anymore,” says Burns.
Understanding that you’re planning to pursue financing can help an accountant or CFO organize your financial information and plans to better position your business to secure a lender.
Outside financial help can be valuable when going after venture capital, too. “As investors, we want to see a financial model. We want to see you’ve made assumptions that make sense,” Pettibone explains.
To learn about these topics in more detail, view the full conversation in our recent Access to Capital: How to find funding for your woman-owned business webinar.
For more insights into the challenges and opportunities women entrepreneurs face, join our event series.