Why financial literacy is crucial for female founders

Do your eyes glaze over when you think about preparing your finance stuff for fundraising? Well, you are not alone! Yet, without having a strong handle on your numbers and understanding how business is performing, female founders won’t have a chance of getting an investment. As a female founder in today’s world, it’s time to fully grasp that handle on the numbers, and never more so than when raising investment. We know that female founders hold back from asking for funding if they’re not confident with their financial skills and will often come under more scrutiny on their financials too. 

However, there’s no need to panic! You don’t need to be a finance expert, but you do need to know what drives the performance and growth of your business and be able to structure your investment deal. You also need enough financial literacy to be able to hold your own in a conversation with an investor. Otherwise, it’s unlikely they’re going to trust you with their money.

Here's what you're going to need as a minimum:

Why is it that female founders struggle with finance?

Culturally, we treat women differently financially from men. There are three key factors:

1. Conditioning: we treat boys and girls differently from an early age – from pocket money to talking about money, men were historically in charge of the finances. It is a deep cultural belief that finances are more a men’s domain.
2. We don’t speak to girls and women as much about finances. Many women have drilled into themselves that they’re ‘not good with numbers’, which can be a self-perpetuating myth.
3. We assume men have competence in funding and that women don’t.

None of this cultural conditioning is fair, right or easy to deal with. In fact, research shows that female led businesses are often more profitable than those run by men. But rather than getting stuck in the injustice of this, we’re here to help female founders to turn this around. 

Financial forecasts - your business plan told in numbers.

Financial forecasts are so important for high growth founders as “cash is queen”. What we have in the bank may not be enough when we project forward to the lumps in our cash flow: VAT returns, corporation tax, PAYE, outstanding customer payments. You need at least a three-month projection of your finances to give an unobstructed view. 

For a high growth potential business, use your forecast to determine whether you have the means to generate the revenue over time to meet your goals. Consider what new products, services or projects you require to meet your longer term financial targets.

You are your biggest investor. Your own time, sweat, tears, and money are going into your business. If you’re doing this blind - without a financial plan - you’re doing yourself a disservice as the prime investor.

Where to start

You’ll get a clearer view of the future by getting numbers down on paper, even if that’s just in a word document. This gives you a quick sign of patterns to help drive your decision making.

It’s worthwhile having a robust spreadsheet that shows your assets and debts, profit & loss along with a cash flow forecast to see how much money you have. This should have your historic data and your forecast. This becomes a daily dashboard that can help drive your decision making and prioritise your tasks. You can build one yourself at a basic level, or better still, engage an accountant to help you put together a format that will work for your specific business.

A good finance specialist will ask the right questions and help you stress test your assumptions to ensure your predictions are robust. 

Three financial reports you must have and understand 

It’s so important that founders know their finance. Investors are entrusting you with their money, so you’ll need to have a handle on the finances to ease their peace of mind. 

Before speaking with investors, ensure you have and are deeply familiar with the following three reports. You can expect to be questioned on these and each report provides a unique microscope on your finances.

1. Profit & Loss
2. Cash Flow
3. Balance Sheet 

Some tips on what you should look for from professional financial support

Many founders have a handle on their finances and easily manage these in the early stages. Be aware of your limits as finance can get technical and it’s important to recognise the point at which you need to engage a professional to help.

When you’re selecting your financial expert, consider:

• Do they communicate in language that you understand? It’s important that an accountant speaks in your language and works with you to increase your financial knowledge.

• Are they trying to help you understand your figures and build your ability to communicate these? Don’t accept a ‘leave it with us’ approach.

• Does your accountant ask challenging questions? These will help you improve the financial position of your business and add value that you hadn’t considered.

• Do they understand high growth business? Your average tax accountant rarely addresses the financial requirements to scale for growth. You should look for a commercial, forward-thinking financial director who will help you try to solve the problems that haven’t yet happened.

Know your numbers

Knowing your numbers is a critical element to successfully raising investment, and it’s important that as a founder you feel empowered to discuss your finances with potential backers. This is a key step in our Fundraising Academy programme for female founders. If you think you need some help and you want to quick chat about it, book an Intro Call and let's get you on your way.