Report Illuminates Wealth-Creation Gap Among Small Business Owners
Jan 30, 2016
A growing number of self-reliant Americans have started one-person businesses in recent years to make a living. But minority and women business owners who opt for self-employment aren’t faring as well as they might be, when it comes to building the value of their businesses, according to a new report by the Corporation for Enterprise Development (CFED), a national nonprofit based in Washington, D.C. that is dedicated to expanding economic opportunity for low-income families and communities. The report, CFED’s “Assets & Opportunity Scorecard,” looks at a number of factors affecting the economic picture for low-income families.
Both minority-owned and white-owned businesses saw the value of their businesses improve between 2007 and 2012, according to the report, called “The Steep Climb to Economic Opportunity for Vulnerable Families.” The study based the value of the businesses on their sales, receipts or revenue.
In the period from 2007 to 2012, the value of minority-owned businesses improved on a national level, but it dipped in 13 states and the District of Columbia. White-owned businesses improved in value nationally and in every state.
While the average value of minority-owned businesses rose by $22,000 or nearly 10.8% since 2007, the value of businesses with white owners increased by more than $121,000–or 22.6%–during that time. The average receipts of firms with white owners were $656,364, compared to $224,530 for businesses owned by people of color.
Making the trend more striking is the fact that the percentage of workers of color who are running businesses rose from 13% in 2007 to 16% in 2012–adding to 2 million firms to the U.S. roster–while the number of firms with white owners declined by 1 million during the same period, the report notes. The authors conjectured that the reason some of the white-owned firms closed was that the owners had turned to self-employment as a job substitute during the recession and got jobs as the economy improved. Most of the firms that closed were solo operations with no paid employees.
The report also points to a gap in the value of businesses owned by men vs. women. The average business owned by men was worth $726,000, compared to $239,500 for women-owned businesses, the report says. Male-owned businesses averaged $726,141 in receipts, versus $239,486 for women-owned firms.
It’s very possible that some of the gaps in value reflect differences in the types of businesses the owners started or factors such as whether the businesses were full-time or part-time operations.
Nonetheless, this is issue is worth further study. It is important to know, for instance, if the value of a one-person accounting businesses varies with the demographic profile of its owner. If so, there might be issues of unequal access to needed resources, like entrepreneurship education, among specific demographic groups that could be addressed through smart policy decisions.
To improve the situation of those who are starting small businesses, the report recommends that states make strong investments in microbusinesses development and offers some very specific suggestion on sources of funds that could be used to support these tiny businesses so the owners can thrive. Many Americans could potentially be affected by an improvement in the situation of one-person businesses. CFED found that 16.6% of the U.S. labor force now owns a microbusiness.
“States should continue to make investments in these businesses by directing federal funding received through Community Development Block Grants (CDBG), the Workforce Innovation and Opportunity Act (WIOA) and Temporary Assistance for Needy Families (TANF) to support low-income entrepreneurs and microbusiness development,” the report urges. “In 2015, 23 states permitted the use of federal CDBG funds to support microbusiness, while 17 states permitted federal TANF or WIOA funding to do the same.
The big question is how best to help microbusiness owners gain a foothold in the entrepreneurial world and position their tiny ventures for revenue growth–even if they never create a single job for anyone other than the owner. There is a steep learning curve for anyone making the transition from the world of traditional jobs to the free-agent economy. With more and more Americans operating solo businesses, the most valuable support will go beyond feel-good encouragement and help them gain the know-how that will allow them to thrive.