5 Ways Women Entrepreneurs Can Get a Financial Life
Friday, February 3, 2012 at 3:22PM 
I am honored to speak at today’s White House Urban Economic Forum for women entrepreneurs, on a panel about “second acts”—women who have embraced later-in-life entrepreneurial success.
In preparation, I called a few entrepreneur friends. One started a wildly successful clothing shop and had no retirement savings. Another served as CEO of a major fashion house, then opened her own thriving business, yet when asked about her retirement plan, she had to ask her husband. A third woman raided her 401(k) to fund a financial planning firm and her kids’ college tuition; now she’s 54, divorced, and has no retirement funds.
Their stories reminded me that although many women have second acts in work or love, most of us don’t get second acts in our financial lives until it’s too late. That’s especially important for entrepreneurs, who are ambitious risk-takers—which I love!—but have fewer safety nets than traditional employees.
Now is the time to get on track. Here’s my list of five things women entrepreneurs must do to take care of themselves financially.
1. You must have health insurance.
This is a non-negotiable: If you can’t afford health insurance, you can’t afford to go into business. Health insurance protects you in case you have a serious accident or illness. Without it, you could bankrupt yourself or your family. Self-employed folks (sans employees) can join a professional group, which lets folks purchase insurance at a group rate. Check with your local Chamber of Commerce, the Small Business Service Bureau, or the National Association for the Self-Employed. Or shop around for a low-premium, high-deductible policy that covers catastrophes at ehealthinsurance.com. Business owners who have employees can set up a small business group plan. For help, try the National Association of Insurance Commissioners. If you have a pre-existing condition that makes it hard to get traditional insurance, take advantage of affordable PCIPs (pre-existing condition insurance plans). Visit statehealthfacts.org to see the rules in your state. Lastly, look forward to 2014, when President Obama’s Affordable Care Act will let individuals and small businesses access affordable healthcare through a competitive marketplace called an Exchange.
2. Save for retirement.
When starting your business, it may be tempting to dip into your biggest pool of cash, which is often your 401(k) from your last job. My advice: Don’t do it. You can borrow for your business, but you can’t borrow for retirement. On top of that, you must keep saving. To estimate how much you need to save, use Choose to Save’s Ballpark E$timate calculator. Don’t let the number freak you out—use it as motivation. Luckily, there are many retirement plans available to small business owners. Whether you’re fully self-employed or working a day job on the side with a 401(k), consider opening an IRA. Roth or traditional IRAs let you stash up to $5,000/year. But small business owners should consider a SEP-IRA, which lets you contribute up to $49,000/year and grows tax-deferred. The catch: a SEP-IRA can get costly if you have employees, since you have to contribute to their accounts, too. You can make an IRA contribution for the tax year 2011 by April 15, 2012, so look into all the options, consult a CPA, and figure out which plan is best for you. But whatever you do, save.
3. Borrow wisely.
There’s no shame in borrowing money to get your business off the ground, but do so in a way that protects your credit. Start by checking your credit score for free at annualcreditreport.com—this number will predict your eligibility and how much you’ll pay for a loan. When borrowing, shop around for the lowest interest rate. Avoid using your home as collateral or relying on high-interest credit cards. Instead, look to bank loans, which currently boast low interest rates (but can be hard to get). At the bank, ask about Small Business Administration (SBA) loans—a record $30 billion in SBA loans were issued last year. To get started, fill out a short survey to see which SBA loans are right for you. And keep an eye out for Startup America, a White House initiative with several programs to help entrepreneurs secure loans and find mentors. It certainly indicates energy and attention to the needs of small business owners.
4. Pay quarterly taxes.
The companies that pay you probably won’t withhold taxes, so checks will seem bigger than they are. To avoid writing an overwhelming check to the IRS once a year, pay estimated taxes quarterly. And make sure you pay enough self-employment tax, too. The good news is that self-employed folks have tax deductions galore. You can deduct half the Social Security and Medicare taxes you pay, all of your health insurance premiums, business travel expenses, office supplies and equipment, and (sometimes) home office expenses. If you're baffled, consider hiring a CPA. Which brings me to #5...
5. Get a good CPA.
The most important choice in life: your spouse. Number two: your accountant. The right person can make the difference between success and drowning in paperwork, debt, and audit notices. A CPA (certified public accountant), EA (enrolled agent), or attorney will have the most experience. Call around to see which ones match your needs, and check out their qualifications, including credentials in accountancy and taxation. Recommendations from friends may not be a safe bet (hello, Bernie Madoff!). The National Society of Accountants and American Institute of CPAs are online directories to help you search, and the Accreditation Council for Accountancy and Taxation has a list of questions to ask when starting the selection process.
Best of luck on your business ventures! Feel free to ask me a question in the comments below.
