Most business owners agree that the entrepreneurship journey is unique. It can be demanding, lonely, tiresome, and hard. But, all journeys aren’t created equally, especially as it relates to black entrepreneurs especially when only 1% of the businesses that make it past the 4 year mark will be African American owned.
There are more than 2 million Black-owned businesses in the United States and according to Forbes, Black Women are among the fastest growing entrepreneurs, growing at a rate of 3 times their share of the female population.
SPONSORED: Find a Qualified Financial Advisor
1. Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes.
2. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you're ready to be matched with local advisors that can help you achieve your financial goals get started now.
What makes the Black entrepreneurship tougher?
Access to and cost of capital
Black entrepreneurs apply for traditional funding at the same or higher rates than other demographics, but get denied more frequently and when they do get approved, get lower amounts and higher interest rates resulting in more African-American entrepreneurs turning to credit cards to fund their business than any other demographic.
FinTech and Ecommerce companies such as QuickBooks and Shopify are now offering options to business owners typically based on sales performance through their platform and other metrics that may be able to assist these underserved owners and while it’s not start-up funding, it does provide an avenue of funding to assist with growth and sustainability.
Lack of generational wealth/lower net worth
Seventy-three percent of Asian business owners rely on family and personal savings to start businesses, followed by 72% of Hispanics, and 70% of African Americans. While this may seem like this is reliable enough to fund a business, it’s important to note the racial pay and wealth gaps that exist which can lead to underfunding.
Judged more harshly and given fewer chances
We see African Americans being judged more harshly starting early in school. The data shows it never goes away.
Black workers are judged more harshly from bosses, which impacts reviews, wages, and employment while Black businesses aren’t awarded more chances when their first business doesn’t succeed.
Motivational speaker Eric Thomas once said “Practice doesn’t make perfection. Practice makes progress.” Black entrepreneurs just don’t get the same number of chances.
While there are some forces that are out of a Black business owner’s control, below are some additional tips that may help entrepreneurs get organized:
Find the right ProAdvisor or accountant. Consider cultural competence, risk tolerance, availability, and relevant expertise.
Register your business. Visit sba.gov to register your business. Here’s a quick rundown of the different types of entities, so you know what category your business falls into:
- LLC (limited liability company): Legal form of business operation that protects the owner from company debt/liabilities
- C-Corp: A business structure that indicates that the business is taxed separately from the owners or shareholders and can have unlimited shareholders
- Non-Profit: An organization that is organized for purposes other than generating profit
- Partnership (multi-member LLC): Legal form of business between 2 or more people that protects the owner from company debts/liabilities
Obtain a federal EIN and applicable state tax IDs. You’ll need to set this up in order to pay state and federal taxes, hire employees, and open a bank account. It’s free to do and should be the next step immediately after registering your business.
Set up a business bank account. Check with local credit unions, e-banks, and fintech companies like QuickBooks who offer business banking solutions that meet your needs. Look for things like low or no maintenance fees, higher interest rates, and if you need access to a brick and mortar, look for proximity.
Set up accounting software. Software like QuickBooks gives you a picture of your finances all in one place, makes payments faster and easier, and helps you manage your cash flow, budgets and expenses.
Apply for permits and licenses. Check with the U.S. Small Business Administration to find out what your business will need. These vary depending on location, industry, and state or local government regulation.
Leverage software and tools. Types of software to consider exploring include:
- Website building/Marketing
- Customer Relations Management
- Payment processing
- Project management
Featured Image Credit: DepositPhotos.com.