Racial Wealth Divide: Challenges & Opportunities for Black-Owned - PowerPoint PPT Presentation

Entrepreneurship & the Racial Wealth Divide: Challenges & Opportunities for Black-Owned Business in the South Spectra Myers, Sr. Research Manager www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

What issues do you hear? “I’m not in the negative. I’m in the positive but just barely . I could lose the business. I don’t want to think about that. There is always a way.” “It’s not hard when the money is coming in but, when it is not, you start robbing Peter to pay Paul.” “There are months where I don’t know how to pay rent, light bill, and I’ve taken a total loss .” "Having consistenc y with customers is the hardest part. Busy is cool but I like consistent more. You have to put money to the side for the bad times. I won’t run out of money but money gets low . www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Background www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Who We Are Our mission at CFED is to make it possible for millions of people to achieve financial security and contribute to an opportunity economy. www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Why cash flow difficulties?  Cash flow difficulties are major financial vulnerability threatening the financial wellbeing of low- and moderate-income entrepreneurs 37% of survey respondents report cash flow difficulties as top business challenge From CFED’s In Search of Solid Ground: Understanding the Financial Vulnerabilities of Microbusiness Owners www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Disparities in business outcomes Average Receipts $641,742 $73,226 White-Owned Businesses African-American Owned Businesses From CFED’s Assets & Opportunity Scorecard www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

The racial wealth divide Average Net Worth $141,900 $13,700 $11,000 White Black Hispanic According to Pew analysis of 2013 data from the Federal Reserve’s Survey of Consumer Finances . www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Insights from practitioners and entrepreneurs www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Two sources FIELD SCAN DISCOVERY RESEARCH   30 in-person interviews with African- 35 phone interviews conducted with small- and microbusiness American small- and microbusiness practitioners in 9 Southern states owners in 3 Southern States To be released Fall 2016 www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Components of financial capability Social Networks Entrepreneur’s Financial Ability & Resources Social, Economic & Public Systems www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Entrepreneur’s Financial Ability & Resources An individual entrepreneur’s attitudes, knowledge, skills and behaviors with respect to financial management and/or their personal financial resources. These characteristics may include: • Keeping accurate, and complete and formal financial records • Using financial records to forecast, calculate break-even analysis and determine appropriate pricing • Allocating expenses appropriately • Filing complete, accurate tax returns • Knowledge about how to identify and access safe, affordable financial products and services and avoid predatory loan products (e.g. title loans, pawn, payday, check cashers) • Ample personal or business savings (cash reserves) or other net worth • Sound credit history

Social Networks An entrepreneur’s social networks — made up of family, friends, staff and/or professional connections — affect their access to other helpful resources such as money, collateral, mentors, model entrepreneurs and deals.

Social, Economic and Public Systems The systems in which entrepreneurs operate and the institutions within those systems affect the quality and accessibility of:  Affordable and flexible loan capital (e.g. microloans, lines of credit, farm loan)  Protections from predatory financial products (e.g. title loans, pawn, payday, check cashers)  Banks, other financial institutions and/or CDFIs offering safe, affordable financial products and services  High-quality, professional assistance for key functions like bookkeeping, accounting and tax preparation  Training and technical assistance to build financial management knowledge, skills and behaviors  Equity investment (e.g. seed capital, venture capital, institutional investment)

Our research questions for phase II  How do entrepreneurs experience cash flow difficulties?  In particular, how do entrepreneurs’ responses to these questions differ from what we heard from practitioners?  Do they perceive their challenges in a different light?  Do they attribute them to different causes?  What steps, if any, have entrepreneurs taken to prevent cash flow difficulties?  What solutions might help entrepreneurs resolve their cash flow difficulties? www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Entrepreneurs’ background and demographics  Eastern North Carolina, Southwest Business Age Georgia and Jackson and the Delta  Over 10 years: 11  7 to 10 years: 4  Gender:  4 to 6 years: 12  Male: 17  1 to 3 years: 4  Female:13 Most represented industries: Lawn  Area Median Income Care, Cleaning, Retail, Health Care, Food  Below 80%: All Service and Construction  Below 50%: 19 8 of the business had employees of  Below 30%: 11 any type  Business Main Source of Income:  Yes: 17  No: 13 www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Our team www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Most experience cash flow issues www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

What drives cash flow difficulty? Practitioners say:  Low or inconsistent sales  Higher-cost business expenses  Mismatched cycles for payments to suppliers and receipts from customers  Emergencies or unforeseen circumstances  Difficulty making well-informed financial decisions www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Different perspectives Practitioners say: Entrepreneurs say:  Higher-cost business • Higher-cost business expenses expenses “I’m always looking to cut expenses. Last year, I came through and refinanced some things including a rental property. I’m also moving to VOIP rather than a land-line with AT&T to save money.” www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

What drives cash flow difficulty? Entrepreneurs say:  Low or inconsistent sales  Higher-cost business expenses  Mismatched cycles for payments to suppliers and receipts from customers  Emergencies or unforeseen circumstances  Difficulty making well-informed financial decisions  Higher-cost business expenses www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Difficulty borrowing or getting loans “I tried early in the business to get a loan but they wanted to see a business plan, how much you made last year, your future if you can predict it. They wanted collateral. It was a bunch of rigmarole. I started out and I knew it wasn’t going to be the right answer. I talked to other people who tried and it wasn’t going to work for me. I felt like if there wasn’t so much red tape, I could have gotten the money and made more money… The likelihood I would approach a bank again? Zero. Zero." 21/30 report difficulty borrowing or getting loans www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

What drives cash flow difficulty? Entrepreneurs say:  Low or inconsistent sales  Difficulty borrowing or getting loans  Mismatched cycles for payments to suppliers and receipts from customers  Emergencies or unforeseen circumstances  Difficulty making well-informed financial decisions  Higher-cost business expenses www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Different perspectives Practitioners say: Entrepreneurs say:  Mismatched cycles for • Late or non-payment from payments to suppliers and clients receipts from customers www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Late and/or non-payment “If you were to look at my accounts, I have so many people that owe me money, and that’s another major problem. I extend credit. Once the flowers are dead, that’s it.” 19/30 report late payment from clients www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

What drives cash flow difficulty? Entrepreneurs say:  Low or inconsistent sales  Difficulty borrowing or getting loans  Mismatched cycles for payments to suppliers and receipts from customers  Late or non-payment from clients, or mismatched cycles of payments and receipts  Emergencies or unforeseen circumstances  Difficulty making well-informed financial decisions  Higher-cost business expenses www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

What drives cash flow difficulty? Entrepreneurs say:  Low or inconsistent sales  Difficulty borrowing or getting loans  Late or non-payment from clients, or mismatched cycles of payments and receipts  Emergencies or unforeseen circumstances  Difficulty making well-informed financial decisions  Higher-cost business expenses www.cfed.org @CFED /CFEDNews cfed.org/blog/inclusiveeconomy