Charting the path for financial independence of female small business owners

As a 21-year-old when Shibani Kharbanda (name changed) decided to tread on the path of starting her own patisserie, she was primarily concerned about creating a menu that would regale her customers instantly and making herself a name to reckon with in Delhi’s culinary landscape. After setting up her dream kitchen, Kharbanda realised that given her experiences as a student at one of the best culinary schools in the world, she was more than adept at conjuring divine treats but the bumpiest part of the journey would be managing finances.

Entrepreneurship may have been painted with glamorous strokes by pop culture and the media but those who have embarked on this will be able to able to corroborate that the journey is harder than what most people believe it to be. Add gender stereotypes to the mix and you would have a glimpse into why entrepreneurship is harder for women than men.

A 2019 report titled, Powering The Economy With Her: Women Entrepreneurship In India, that was published jointly by by Google and Bain & Company, a leading global consulting firm stated that women business-owners could potentially create 150 million-170 million jobs in India by 2030. However, only seven of 100 entrepreneurs in India are women and of them nearly half (49.9%) get into business out of necessity rather than aspiration, says a November 2020 report of the Initiative for What Works to Advance Women and Girls in the Economy, a gender research and advocacy organisation.

A major impediment encountered by women business owners is the challenge of dexterously managing finances. While our education system keeps students of both genders equally deprived from building basic financial skills, the problem is more layered for women. This is because managing finances is still considered a male bastion in most families and women’s participation in money management is confined to maintaining budgets. Although a wave of change is underway what with younger generations actively taking charge of their finances but the milestone where women are considered to be at par with men in matters of the wallet is still eons away.

This has a trickle-down effect even when women decide to start their own businesses. Kharbanda narrates, “I was privileged to grow up in a household where young girls were never told there was a bunch of things they couldn’t or they should do because of their gender. Despite that, I do not remember seeing my mother or my aunts actively managing investments. Consequently I grew up with the notion that there will always be a man to do it for me. And when I started working on my plan to launch a patisserie, I felt I was at sea when I had to deal with finances. That is when I realized that for women who run small businesses, they may have to walk a few extra miles to learn the ropes of financial management but it is something that they cannot ignore.”

It has been five years since Kharbanda’s patisserie came into existence and today she has earned a niche for herself as a pastry chef in the capital with the who’s who of the city having tasted her creations. “Hard work, dedication, skill aside, at this stage I can safely vouch that I wouldn’t have tasted this level of success as a small business owner if I had not learnt a few financial lessons and would have simply outsourced all the financial responsibilities to a third party. It is extremely important for women who aspire to start their own businesses to strive to free themselves from gendered psychological blocks,” Kharbanda says.

32-year-old Amrita Shahi (name changed) runs an Instagram shop that curates and sells handwoven textiles from all corners of the country. Shahi started this as a side hustle in 2015 while working as a financial analyst at an MNC and with time, the venture garnered enough traction for her to be able to quit her job and delve into it full-time. “The major takeaways as a small business owner are that never to blur the lines between personal accounts and that of the business and to never get complacent with your business’ finances even if you have hired the most efficient and trustworthy people to do the job,” Shahi advises.

“If you do not demarcate your personal expenses and earnings from that of your business, it can quickly spiral out of control and you may end up spending more than what you or your business can afford. This can create a dent in your credit scores and make it very hard to seek loans in the future. Also, unless you are clear about how much income is generated and how much is being spent, it would be difficult to formulate effective strategies for your business and there is also the risk of business resources being misused. And what with societal perceptions being largely negative about the money-managing abilities of women, it can embolden your clients, business partners or employees in the wrong way,” she said.

When it comes to investments, Shahi believes that her business and her personal finances alike have benefitted immensely from mutual fund investments. Shahi recalls starting separate investments for creating the capital that she needed for starting her business. “Even though it was a really small venture, I was steadfast that I didn’t want to drown myself in loans or tap into my personal investment stash. I diverted a portion of my savings in a mix of mutual fund investments with more weightage to debt funds because the investment horizon was short and the returns were more than what I needed which gave me the freedom to start my business without having to compromise on my personal finances.”

Ananth Ladha, the founder of Invest for Aaj Kal advises, “The best part about being successful in investing is you don’t need a large amount of money to make it big. The most important thing in investing is to start early. So if you are a woman small business owner or if you run a home business, you should focus on starting early and investing regularly. For instance, an investment of ₹5000 per month via equity SIPs with expected returns of 13% can create a corpus of ₹1 crore+ in 25 years. You can reach financial independence with mutual funds provided you let your money work for itself and stay patient enough so that the magic of compounding can work.”

Key Takeaways

• If you are unsure of what to do then it is always good to seek help. Consult a financial advisor when you are not feeling confident of taking the right decision.

• Pay extra attention to the tax implications of your business. You can significantly reduce your liabilities by proper tax planning.

• Do not procrastinate setting up the business’s financial apparatus and processes for a later stage. Without a system in place, the chances of misuse of financial resources can be very high.

Disclaimer: This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.