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More than 83 per cent of women-owned SMEs use personal sources to fund / Getty Images

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Women face unique challenges in building wealth, but female entrepreneurs encounter even greater headwinds resulting in a wider financial wealth gap that advisors can help close.

Female entrepreneurship is on the rise in Canada. Women now account for 37 per cent of self-employed Canadians and are majority owners of about 16 per cent of small and medium-sized enterprises (SMEs), according to the Women Entrepreneurship Knowledge Hub (WEKH).

Women choose to be their own bosses for several justifiable reasons. Many continue to be primary caregivers of children or elderly parents and want the ability to set their own work schedules. Others have had enough of being subjected to corporate discrimination, pay inequity and layoffs, and want more control over their future.

No doubt running your own business comes with its perks, but when it comes to building wealth and financial security, self-employed women face an even greater financial wellness gap than women who are employed.

Advisors can play a key role in supporting female business owners and help them identify the following four financial gaps in order to reduce the disparity with their male counterparts.

1. The financing gap

More than 83 per cent of women-owned SMEs use personal sources to fund businesses. Women are also less inclined to seek and receive financing at 33 per cent compared with 38 per cent of men, according to WEKH.

While there are well-documented cases of lending biases, many women wear bootstrapping as a badge of honour because it feels less risky not being accountable to investors or liable to creditors.

Yet, the downside of avoiding leverage or “good debt” altogether is they may avoid investments necessary to sustain or scale their business. They also risk depleting their savings – emergency and retirement funds – and growing dependent on high-interest debt.

2. The ‘fempreneur’ pay gap

It’s no secret that women are paid less than men. Women in Canada’s workforce earn around 89 cents for every dollar men make, according to the federal government. But the pay gap is far more pronounced for female business owners.

Self-employed women make 32 per cent less than self-employed men, an Organisation for Economic Co-operation and Development report shows.

There’s a higher likelihood of a company’s human resources department setting pay equity standards, but as a business owner, a woman is in a unique position to set her own rates. You may think that this is an opportunity to level the playing field, but that’s not at all the case.

FreshBooks 2018 Women in the Independent Workforce report revealed several reasons why self-employed women make less than men in the same industry. Twenty per cent of female entrepreneurs believed they had to charge less than male equivalents to get and keep clients while 30 per cent felt they were not taken as seriously as their male peers and 34 per cent had experienced gender discrimination running their own business.

The result of these biases is similar to what women in the workforce experience, but is magnified.

If female entrepreneurs make less, they’ll pay themselves a much lower salary, if at all, and accumulate far fewer savings, wealth, and assets.

3. The retirement gap

An often-overlooked benefit of working for a company is being obligated to save for retirement through Canada Pension Plan (CPP) contributions and an employee-sponsored plan, if available. Yet, when retirement savings are voluntary, they’re seldom a priority.

For women who potentially face a 40 per cent wealth gap and live five years longer than men, on average, saving for retirement is a must.

Self-employed women have to find ways to make up for these otherwise taken-for-granted benefits and build wealth, and advisors are well suited to run through the options.

That can include ensuring they pay themselves an adequate salary to collect future CPP benefits in retirement, build registered retirement savings plan (RRSP) contribution room or take advantage of spousal RRSPs, save enough yearly to contribute to a tax-free savings account, or set up an individual pension plan if practical.

4. The protection gap

Many who run their own business do so without much support or a backstop.

If they get sick or injured and are unable to earn a living or continue to run their business, the financial implications can be devastating. Once again, that risk is more acute for women.

For one, lots of women are sole proprietors. Women are also far more likely to juggle multiple duties – as a breadwinner, homemaker and caregiver. Women cite those added responsibilities have led to greater stress and putting their health care on the backburner. Therefore, it’s more conceivable for women to suffer a critical illness.

Income protection is vital for women to guard against shocks so they can pay both personal and work bills, whether that’s health and life insurance for them or their partner, or key-person coverage – an insurance policy that a woman can take out to protect staff seen vital to running the business.

Saijal Patel is founder and chief executive officer of Saij Elle, a financial consultancy and education firm. She is also the creator and host of personal finance program Strictly Money.

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