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The Inclusive Economy

Heading South to Investigate the Cash Flow Problems Facing Black Entrepreneurs

By Lauren Williams on 07/11/2016 @ 09:00 AM

Tags: Entrepreneurship, News, Racial Wealth Divide

Next week, CFED’s Entrepreneurship and Applied Research teams will travel to North Carolina, Georgia and Mississippi to meet with and learn from African-American entrepreneurs. While we are there, we will listen to their stories so we can piece together a deeper understanding of their unique experiences and gain insight into what needs to be done to transform more Black-owned businesses into wealth-building enterprises. All of this work, which CFED is carrying out thanks to the support of Capital One and Prudential, is part our ongoing effort to identify the opportunities and challenges facing self-employed African-Americans in the southeastern United States, which are outlined in our new field scan, Unstacking the Deck: Toward Financial Resilience for African-American Entrepreneurs.

The deck was stacked against many African-American entrepreneurs long before they even started their businesses. Most entrepreneurs, regardless of race, rely on personal savings and net worth to launch their enterprises. But according to the 2016 Assets & Opportunity Scorecard, the median net worth of white households in the US ($110,637) is more than 15 times greater than that of African American households ($7,113)—leaving Black entrepreneurs at a significant disadvantage. This severe imbalance means African-American business owners are much more likely to start out drastically undercapitalized and are less equipped to absorb the losses that most businesses experience in their early days. When their businesses survive beyond the startup phase, African-American entrepreneurs remain more exposed to financial risk than their white counterparts should they run into routine business problems. CFED believes that the effect of this risk is demonstrated by the chasm between business revenues of white- and Black-owned businesses in states like Mississippi and Georgia, where the average sales of white-owned businesses outpace those of Black-owned firms by 16 times and 13 times, respectively.

Cash flow difficulties—the inability to cover one’s business expenses with cash on hand—pose a significant risk to many financially vulnerable businesses. Our new field scan is based on a more nuanced understanding of this problem, which is based on our recent conversations with 35 small and micro-business practitioners and financial institutions in nine southern states. What we learned from these experts suggests that African-American entrepreneurs in the South experience a level of vulnerability exacerbated by a preexisting lack of wealth, discriminatory lending, lack of supportive financial institutions, under-resourced social networks and much more.

When we head to eastern North Carolina, southwestern Georgia and the Mississippi Delta in the coming weeks, we will continue to expand our understanding of the experiences, challenges and strategies African American entrepreneurs use to overcome cash flow difficulties and collaboratively explore new ways to address them. To keep learning along with us, join our webinar next week—Race, Entrepreneurial Success and the Wealth Divide—or find us at the 2016 Assets Learning Conference.

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