A growing number of women are launching their own business but many do not pay themselves an adequate salary or plan for their retirement, putting their financial future at risk, says Lindzi Caputo, wealth management manager at HLB Mann Judd Sydney.
“Recent figures from the Australian Bureau of Statistics (ABS) show that the number of women who run their own business has almost doubled in the last two decades.
“It is encouraging to see a growing number of women setting up on their own, however it is concerning that female entrepreneurs tend pay themselves less than their male counterparts, and to contribute less to their superannuation,” Ms Caputo says.
Research show that women business owners typically have lower weekly income than their male counterparts. One ABS report[i] showed that women who operate unincorporated businesses have an average weekly cash income of $522, while for men it is $831. The average weekly cash income for incorporated business owners was $998 for women and $1,451 for men.
Furthermore, just 45 percent of women business owners pay themselves superannuation, with the result that self-employed women’s superannuation balances are on average one-third lower than both women employees and self-employed men[ii].
Ms Caputo says this is a concern for two reasons.
“Business owners who don’t contribute to their super simply aren’t growing their superannuation savings as much as they would be if they were making regular contributions (or working for an employer).
“And secondly, because fees and insurance premiums continue to be paid out of super, the balance is being eroded further.
“Anecdotally, female business owners often tell us that they are not expecting to make a profit or take a salary for the first few years – but at the same time they don’t have a plan of how to get to the stage where they will.”
Women need to be understand the importance of building wealth for their future that is separate from their business, Ms Caputo says.
“Building a stronger superannuation balance through regular contributions is a way to do this. A stronger superannuation balance provides women with independence and the choice to live how they wish in retirement.”
Some tips for business owners – whether men or women – include:
Value your efforts for what they are worth
It can be hard to put a price on your time and services, but it’s important not to sell yourself short. Are you giving too much away for free? Be prepared to charge people what you think you are worth. No business will succeed in the long-term by undervaluing its goods and services.
Pay yourself a salary
Treat yourself as an employee and pay yourself a salary. It might not be a big or even a fair salary to start with, but it provides a discipline for the future, when the business is better established.
Similarly, don’t forget superannuation. Make a habit of ensuring regular contributions are made to your superannuation account. Business owners can make contributions to their own superannuation account and either receive a deduction in their business or in their own name, depending on their business structure. Superannuation is a good long term investment due to its tax effectiveness.
When cashflow in the business allows you should take the opportunity to make additional contributions up to your annual limit. In future years you could consider the option to catch-up on concessional contributions for those with a superannuation balance under $500,000 from 1 July 2018. This may be a helpful strategy for women business owners to make greater use of super contributions when cashflow allows.
Keep business and personal finances separate
A common mistake is to pay for business expenses from a personal account and vice versa, which can lead to all sort of problems down the line. Think professionally and set things up properly at the beginning. Establish a separate bank account for the business, and a credit card used solely for business purposes. This makes it possible to keep track of cashflow – the lifeblood of small business.