What's Holding Women Back in Small Business? How a Business Plan Can Help.

Business plans are important for all businesses. Yet, less than 1/2 of businesses have them. Women tend to write them less than men. This maybe one of the many reasons why women lag men in receiving funding.

Over the past 20 years, women have made great strides in small business.

women own 11.6 million firms. The growth rate of women-owned businesses is 2.5 times the average. As a result, women owned businesses account for $1.7 trillion dollars in economic output. They employ over 9 million people. More importantly, women of color have outpaced non-minority women in opening new businesses. Over the past 10 years, minority owned businesses account for roughly 50% of all new business. African Americans and Latinas make up the bulk of this growth. Therefore, one would think that women would be doing well, and minorities even better. Yet, that's not the case.

Yet, even with these strides women still trail men in overall revenue

The revenue share of female small businesses remained flat. In 1997, women owned businesses accounted for 4.4% of the total business review. Jump forward two decades to 2017, and that number was still only 4.2%. Why is that? With such a great growth curve, why doesn't it reflect in overall revenues? Let's get into the numbers and take a deeper look. On average, women owned firms gross $130K yearly, whereas their male counterparts gross $570K yearly[i] (SBA). Businesses owned by women of color fair worse. They earn roughly half of non-minority owned businesses. So, what's holding women back from bridging the gap of growth -vs- revenue?

Perhaps one reason is, the choice of industry.

Half of all women owned businesses can be found in 3 industries. These industries tend to make the median or less.

Other Services: Nail, Hair Salons, etc.: 2.8 Million Business, Median Revenue ~$250K

Healthcare & Social Assistance, etc.: 1.8 Million Business, Median Revenue ~$500K

Professional/Scientific/Technical Services: 1.5 M Businesses, Median $1.7 M

Why Haven't Women Done Better?

Industries with the highest revenue/firm attract few women

• Management consulting ($3.5 M/firm): 0.02% of women
• Wholesale trade ($1.4M/firm): 1.4% women

Women write fewer business plans

It's not clear why women write fewer plan than men. Maybe it's a lack of knowledge. Possibly, it is because of the process. Who knows? The fact remains. You are less likely to receive funding without plan. And, with all the other biases working against you, this one is a relatively easy fix.

Historical biases are also likely a factor.

Maybe it's a predisposed comfort level with one gender over the other within certain fields. Maybe it seems impossible to break through the old-boys clubs. If the #metoo movement showed anything, it’s that male privilege is still alive and well. Industries yielding the highest revenues are based upon high-level business contacts. These contacts tend to be older, conservative, and white men. As a result, women tend to have less access. Gender roles probably play into the perception of business acumen.

Another reason for this gap is that there is documented racial and gender bias in lending and capital.

A 2016 study by Biz2Credit showed that female-owned businesses receive loan approvals 33% less often than male-owned businesses. The results were worse for minority-owned companies. Hence, many minority-owned firm fail to apply for loans due to rejection fears[ii]. The minority-owned firms, which receive funding, are more likely to receive less and pay higher interest rates.

How Do We Fix It?

Diversity Matters

The Small Business Administration funded an initiative to better understand the issue. They found that diverse boards are more likely to invest in diverse companies. Smaller banks tend to be more diverse. Thus, maybe the best option. Commercial banks are less diverse. So, they may be less optimal. The venture capital industry is likely the worst. As an industry, it is not very diverse. Firms are predominately white (87%) and male (89%).Without as easy access to capital, women and minority business owners are at a disadvantage. Thus, they must rely on personal savings, friends, crowd-sourcing, and credit cards. For some that is not an option. As a result, they have to seek capital from riskier lenders. This increases debt burdens, which diverts funds from operations. As a result, they are more at risk.

What Can You Do?

So, how can you win? Start by choosing the business you love. But, also develop a strong business plan to overcome the inherent biases. Why?

• You are twice as likely to get a loan with a strong business plan.
• Because a strong business plan shows your serious. Take every opportunity to show how much you know about your business
• Solid financials are the cornerstone of a strong business plan. So, if you are facing bias, then make sure your financials are strong
• Having a strong business plan demonstrates a clear vision and definition of success
• Nothings sets a stronger professional tone than a strong business plan

Finally, overcoming obstacles is never easy. Yet, it's not impossible. Therefore, preparation is the best offense. So, having a strong business plan will help. If you are interested, see how ProStrategix can help.[i] Small Business Association[ii] U.S. Department of Commerce Minority Business Development Agency