Women In Business

Why you should ask the hard money questions when starting a business

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Women in business have been conditioned to be passive rather than assertive, from writing emails to speaking up in meetings, we’re constantly aware of our tone and how we may be coming across. However, with more and more women climbing the corporate ladder and starting their own businesses this has to end. Writing emails is one thing, and talking about money is its own taboo in and of itself, but it’s yet another thing that women need to embrace.

While nearly everyone is a little hesitant to discuss money, women are especially so. A recent study by Lexington Law revealed that an overwhelming 82 percent of women wouldn’t feel comfortable asking a friend their salary. This trend needs to reverse itself because discussing finances makes you more empowered about money and boosts your financial literacy. The gender wage gap is an unfortunate reality, that we can beat much faster if we all start discussing finances a little more openly. Just earlier this year CNBC reported that U.S. women working full-time are earning as little as $0.80 for every $1.00 a man earns as of 2016. At the current rate we won’t reach true pay equity until 2059!

As a female entrepreneur, it’s especially important to open yourself up to discussing finances unapologetically. It’s well within your right to inquire about a potential business partner’s finances before deciding to work together. Their finances affect the business, and ultimately yours. Consider practicing by having discussions with friends and family first. This will help build your confidence which is key to making these conversations go as smoothly as possible. Also, having the conversation early is best, and finding the right tact and timing are key to a successful, productive exchange.

Tough money conversations you need to have

You have a brilliant idea, you’re ready to start your own business, but you’d like to find the perfect co-founder or business partner to join you on this exhilarating (and sometimes) frightening journey. Here are some things you should be prepared to ask about before you meet with any potential business partners:

Inquire about their personal finances

This may be business, but things get personal. A committed business partnership can feel very much like a marriage. You wouldn’t want your spouse hiding their finances from you, so neither should your business partner. You may also want to ask about whether they have any experience handling corporate finances or having access to the company credit card. Did they treat the company card like their own?

Check their credit history

It’s ok to ask for a credit report. A lot of companies are starting to pull credit reports as a check before hiring a new employee. A person’s credit actually says more about their financial history than their outstanding debt. For example, someone may have student loans, but that doesn’t inherently make them a bad business partner. However, having loans that are overdue and a tanking credit score does.

Ask how they assess risk

Ideally, a business partner who will challenge you is a good thing. Take a moment to reflect on yourself and your financial past to determine if you’re risk-taking or risk-averse. You may want to try to get a sense for the other person’s habits so you can be sure they’ll compliment your skill-set. Two risk-takers may not be the best recipe for success, but neither is two risk-averse people.

Get a clear idea of what they plan to contribute

Of course you’ll want to know what the other person can realistically contribute financially to getting your business off the ground. This is a big factor in determining whether you’re a good fit, and is a relatively easy question as there shouldn’t be as many emotional ties here.

Find out how they expect to divide profits

Maybe they said in passing that you’re in this 50/50, but when it comes time to actually divvy the earnings you want to know exactly where you each stand. The way you divide profits may be purely on how much you each contributed, but keep in mind that if one person brings the capital and the other brings more ideas or skills, diving profits may be trickier than 50/50.

Put it all in writing

This is the most important step. Whatever you discuss, get it in writing. This is the only way you can ensure that there’s a record of what you agreed on before the profits start coming in. You’ll definitely be thanking yourself later by having the foresight to get everything in writing.

For more on this topic, check out this helpful infographic for specific questions you should ask your business partner. It will help you prepare before your meeting so you go in with confidence.

Why you should ask the hard money questions when starting a business

About Elisa Ortiz

Elisa Ortiz began her career as a paralegal but has since developed a passion for writing about credit and personal finance. She loves to help others understand a subject that has a reputation for being difficult to understand or even worse — boring.

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