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

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Entrepreneurship & the Racial Wealth Divide:

Challenges & Opportunities for Black-Owned Business in the South

Spectra Myers, Sr. Research Manager

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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 consistency 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

• ut of money but money gets low.

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Background

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Our mission at CFED is to make it possible for millions of people to achieve financial security and contribute to an

• pportunity

economy.

Who We Are

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• Cash flow difficulties are major financial vulnerability threatening

the financial wellbeing of low- and moderate-income entrepreneurs

Why cash flow difficulties?

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

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$641,742 $73,226

Average Receipts

Disparities in business outcomes

African-American Owned Businesses

From CFED’s Assets & Opportunity Scorecard

White-Owned Businesses

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The racial wealth divide

$141,900 $11,000 $13,700

Average Net Worth

According to Pew analysis of 2013 data from the Federal Reserve’s Survey of Consumer Finances.

Black White Hispanic

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Insights from practitioners and entrepreneurs

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FIELD SCAN

• 35 phone interviews conducted

with small- and microbusiness practitioners in 9 Southern states

DISCOVERY RESEARCH

• 30 in-person interviews with African-

American small- and microbusiness

• wners in 3 Southern States

Two sources

To be released Fall 2016

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Components of financial capability

Social Networks Entrepreneur’s Financial Ability & Resources Social, Economic & Public Systems

Entrepreneur’s Financial Ability & Resources

• 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

An individual entrepreneur’s attitudes, knowledge, skills and behaviors with respect to financial management and/or their personal financial resources. These characteristics may include:

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)

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• 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?

Our research questions for phase II

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• Eastern North Carolina, Southwest

Georgia and Jackson and the Delta

• Gender:
• Male: 17
• Female:13
• Area Median Income
• Below 80%: All
• Below 50%: 19
• Below 30%: 11
• Business Main Source of Income:
• Yes: 17
• No: 13

Business Age

• Over 10 years: 11
• 7 to 10 years: 4
• 4 to 6 years: 12
• 1 to 3 years: 4

Most represented industries: Lawn

Care, Cleaning, Retail, Health Care, Food Service and Construction

8 of the business had employees of any type

Entrepreneurs’ background and demographics

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Our team

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Most experience cash flow issues

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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

What drives cash flow difficulty?

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Practitioners say:

• Higher-cost business

expenses

Different perspectives

Entrepreneurs say:

• Higher-cost business

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.”

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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

What drives cash flow difficulty?

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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

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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

What drives cash flow difficulty?

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Practitioners say:

• Mismatched cycles for

payments to suppliers and receipts from customers

Different perspectives

Entrepreneurs say:

• Late or non-payment from

clients

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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

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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

What drives cash flow difficulty?

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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

What drives cash flow difficulty?

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Underpricing

“I’ve been told that I’m cheap. Sometimes I have clients who can’t pay so I accept them anyway ...Charging them something that I feel like they may not be able to afford is hard. I know how hard it is out here for people. I’m not struggling in a way that they are because I spend less than I

• make. In the long run it means

I’m working a lot of free time with people.”

17/30 report difficulty

making pricing decisions

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Entrepreneurs say:

• Low or inconsistent sales
• Difficulty borrowing or getting

loans

• Late or non-payment from clients,
• r mismatched cycles of payments

and receipts

• Emergencies or unforeseen

circumstances

• Difficulty making well-informed

financial decisions

• Higher-cost business expenses

Comparing perspectives

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

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Interconnected categories

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• Complete analysis of remaining two research questions:
• What steps, if any, have entrepreneurs taken to prevent cash

flow difficulties?

• What solutions might help entrepreneurs resolve their cash

flow difficulties?

• Determine how best to move forward in search of

solutions

Next steps

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Spectra Myers

• Sr. Research Manager, CFED

smyers@cfed.org

Thank you!