Maintaining Certification Status During Financial Change
Growth is an exciting word for entrepreneurs and business owners. While it can be daunting, growth means business is doing well and you are ready to move to the next level. For women business owners, one valuable tool to help you reach that point is the women’s business enterprise (WBE) certification. Though certification helps with growth, you may be presented with investment opportunities that can significantly impact the structure of your WBE. And in order to successfully navigate new phases of your business, it is essential that you understand how to maintain your company’s status during times of financial change.
The Women’s Business Enterprise National Council (WBENC), the country’s largest third-party certifier of women-owned businesses, has been helping women businesses grow since 1997 by providing access to over 1,000 major corporations, along with a network of over 14,000 WBEs across the country. According to the organization, in the past 20 years, WBENC’s top corporate partners have spent over $35.7 billion on products and services offered by certified WBEs.
The Women’s Business Development Center (WBDC) is the largest regional partner organization of WBENC and helps facilitate business development and retention by delivering resources, including WBE certifications that enable women to start new businesses and grow existing ones. The certification verifies companies, ensuring that they are at least 51 percent owned, controlled, operated and managed, by a woman or women. This means that the woman or women owners can manage and operate the business without control by or dependence upon a male. Women must have the skill set and experience needed to make critical decisions that impact the business.
According to TechCrunch, only approximately seven percent of the partners at top venture capital firms are women. How do you maintain the required level of control and ownership, when investors are more likely to be men?
To successfully navigate financial change while maintaining your certification status, it is essential that you take the time to understand what you need to do in order to maintain your status. Investment discussions can take months, but use this time to prepare the proper business and financial documentation to effectively demonstrate that you will maintain at least 51 percent of ownership, management and operational control of your company.
Keep Certification Top of Mind
Maintaining certification status is not just about ownership. At least 51 percent of ownership, management, and operational control of the company must always be in the hands of women. A woman may have more than 51 percent of the company, but still lose certification status. It’s not enough to own the business; you must be in control of the business. Keep this in mind during the negotiation process.
Many standard investor agreements include terms that could reduce the business owners’ decision-making abilities. For example, if a male investor is financing a buyout and, in the agreement, has extraordinary power to overrule the female business owner, that company could lose WBE certification because the female owner no longer controls the company, even if she still owns 51 percent or more. You need to ensure that, in the terms of any investment agreement, female owners maintain control of the company’s daily operations and strategic decisions.
Demonstrate the Benefits
Since these requirements may, at times, conflict with standard equity investment agreement terms, it will be essential for you to communicate the benefits of WBE certification to potential investors. Demonstrate to them how WBE certification has helped your company grow and the continued opportunities available to your business if you maintain WBE certification. If you can show them how certification can increase their return on investment, they may be willing to adjust their terms. In the past, investors have adjusted their requirements to maintain a company’s certification status.
Ask the Experts
Navigating the certification process can be complicated—especially when you’re trying to align certification requirements with investor requests. WBDC certification experts can provide insights and suggestions during these transition periods. You are not alone—many other business leaders have gone through or are going through financial changes. There are resources to provide assistance.
Investment opportunities are exciting but, when equity is involved, it is essential that you protect your majority control of the business. For many business owners, investment agreements are uncharted territory. You are probably familiar with bank loans, which generally don’t impact your certification because banks typically are not exercising control over your decision-making. When investors get involved, it’s a different ball game. You have to consider how it will impact your WBE status.
One of the easiest ways to ensure your WBE status is to work with female investors but that isn’t always an option. As we work to eliminate the gender gap in the investment community, make sure you are planning ahead to maintain at least 51 percent ownership, management and operational control of your company through your financial changes. Communicate the benefits of certification to potential investors and make sure your final deal will allow you to maintain your status. Once your deal is made, be sure to communicate those changes to WBENC immediately so you can continue to reap the benefits of WBE certification.