Why female entrepreneurs need to be financially savvy

A woman’s work is never done. This phrase is now more poignant than ever as we grapple with the new realities posed by the current pandemic. It is, however, especially true for successful female entrepreneurs who are left dealing with the struggles of everyday life whilst trying to run a thriving business.

Unsurprisingly, many women will put off their personal finance planning to deal with more seemingly pressing issues. By managing your finances effectively from an early stage, rather than waiting until your business has taken off, you will lay the foundations for future successes and create less stress along the way.

Research has shown that the need to have a laser-like focus on the requirements of your business to sow the seeds of success leaves little time for other priorities.  As demands on time spent in an entrepreneurial business intensify, the pressures of home continue to weigh heavy on women, with women eight times more likely than men to look after sick children and elderly parents. Whilst being “time poor” is nothing new for the modern woman, COVID-19 has led to new challenges due to the restrictions put in place, resulting in a lack of home help and child-care arrangements increasingly falling upon mothers’ shoulders.

All this has been occurring against a backdrop whereby the financial services industry has made insufficient provision for the needs of women in their financial affairs.  A recent report on Women and Wealth by Ernst & Young, found that many wealth managers lack a clear understanding of female investors’ goals and priorities.

As we approach 2021 however, this picture is changing rapidly.  Women are the fastest growing wealth segment globally. They are starting and growing their own businesses in ever-larger numbers.  According to the World Bank, 34% of private businesses are owned by women. The Ernst & Young report mentioned above states that, currently, women control USD 14 trn of personal wealth in the US alone, which amounts to 51% of the total. In the UK, 60% of the wealth will be owned by women by 2025, according to the Centre for Economics and Business Research.   As a result, the wealth management industry is now catering to the needs of this emerging and rapidly growing group of women asset owners and female entrepreneurs. 

Yet survey evidence suggests that there are many things that hold women back from taking control of their personal finances, namely:  a) confidence in making financial decisions, b) financial and investment literacy, c) discussing personal finances openly and d) feeling  intimidated by financial advisers.  Now that the wealth management industry is directly addressing the needs of women, there is no need to have these fears any longer.

What follows are the six key steps you need to take in order to make good choices for your financial future:

  1. Get the planning in early. Dont wait until your business has taken off, as by then you’ll have no time to focus on your own personal financial plan. 
  2. Take a long term view.  There is abundant research to suggest that its not about timing the market but time in the market. By trying to anticipate market peaks and troughs, investors run the risk of actually missing out on some of the best days in the market. Investors who focus on long-term goals rather than short-term volatility, have the luxury of realising infrequent negative equity market returns.
  3. Be clear about your goals. These are not restricted to performance metrics and can include funding your children’s education, paying for elder care and charitable priorities.  Indeed, evidence suggests that women have a wider range of goals outside purely performance targets than their male counterparts.
  4. Take time to analyse your tolerance for risk.  Women tend to be more risk-averse and tolerate lower returns if it mitigates the potential for large losses.  Having accumulated hard-earned wealth from your business, be clear about how much risk is appropriate to grow versus protect your wealth.
  5. Consider who are the long-term beneficiaries of your wealth and ensure appropriate tax planning for the long term.
  6. If you plan to monetise your business at some stage in the future, consider tax efficient planning opportunities and steps that may be available prior to the sale of your business. Similarly, it’s also worth thinking about tax efficient planning opportunities post sale. This is where it can be helpful to have the advice of a Wealth Manager and Tax Adviser.