Money Mondays: It's A Good Time To Start A Small Business

 

Tom: This morning we are discussing the state of small businesses and women-and minority-owned businesses in particular.

Mellody: That’s right, Tom. Small businesses are the engine of the American economy, and they employ over half of all American workers. But America’s entrepreneurs – the individuals who start these businesses – are still trying to get back on their feet and recover from the great recession.

That is the bad news. But there have been some encouraging movement on the small business front! The good news is that we are seeing an explosion of entrepreneurial activity among women and minorities that, if cultivated, could brighten the future of our economy.

Tom: OK, let’s start with the bad news – the small business environment.

 Mellody: Tom, it has been a tough few years for the broader start-up sector. While we often hear about every new tech company, overall, fewer people are taking risks and going out on their own. That has resulted in the U.S., long the new business hub of the world, slipping below a number of countries in terms of new company creation. The U.S. now ranks 12th among developed nations in terms of business startup activity per capita, behind a number of countries, including Denmark, Finland, New Zealand, and Sweden. For the first time in 35 years, American business deaths now outnumber business births. Until the 2008 onset of the great recession, startups outpaced business failures by about 100,000 per year. This is not great news for the labor market or the economy.

 Tom: All right, give us the silver lining.

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 Mellody: There is some great news here. Women and minorities are gaining traction as entrepreneurs and performing well in this challenging environment. Score, an organization that mentors to America’s small businesses, has been studying the growth and economic impact of women-owned and minority-owned businesses in the United States, and the numbers are eye-popping.

Currently, there are 9.1 million women-owned businesses in the U.S. that employ 7.9 million people and generate $1.4 trillion in annual revenues. But dig a little deeper, and you start to see the real story. Since 1997, the number of women-owned firms in America increased by 67.8 percent while the number of men-owned firms increased by just 34.4 percent. Over that same period, the employment rate of women-owned firms increased by 11.0 percent while revenues grew 72.3 percent between 1997 and 2014, compared to 6.5 percent and 45.1 percent respectively at men-owned firms.

Tom: What about minority business ownership?

Mellody: The number of new businesses opened by people of color and new Americans are also outpacing the rate of new business openings among the general population as a whole! In particular, women of color have been especially entrepreneurial in the last 20 or so years. Between 1997 and 2014, the number of businesses owned by women of color in the U.S. increased from 1 million to 3 million – fully a third of all women-owned businesses, and the number of businesses launched grew at a breathtaking pace! Women entrepreneurs of color increased business ownership by 215.7 percent and increased revenues by 193 percent! Both ownership growth and revenue growth outpaced their non-minority counterparts.

Latinos and immigrants have also been driving new business creation. Latino-owned businesses have increased in number from 1.57 million enterprises in 2002 to 3.22 million in 2014, 2 times the national average. Immigrant entrepreneurs launched 28.5 percent of the new businesses in 2014, up from 25.9 percent a year earlier and just 13.3 percent in 1996.

Tom: It sounds like the small business landscape is reflecting our diverse population.

Mellody: It is certainly getting better and becoming more reflective of the population as a whole, but there is a long way to go. Currently, minorities account for about 15% of all of small businesses in America, but at 40% of the population, there is certainly still a gap.

Tom: Sounds like it! So if our listeners are thinking about setting out on their own, where should they start?

Mellody: Starting a small business obviously is not for everyone. However, if you have an idea and are ready to take the leap, there are a number of resources out there that can help you prepare yourself before hand. As i mentioned before, organizations like Score provide mentorship and business planning assistance for new businesses. The small business administration has a number of resources you can use as well, including the 8(a) business development program. It is a business assistance program specifically designed to assist minority owned businesses. The 8(a) program offers a broad scope of assistance to firms that are owned and controlled at least 51% by socially and economically disadvantaged individuals.

Tom: Thanks for joining us today, Mellody!  

Mellody: You are welcome, Tom!

Mellody is president of Ariel investments; a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News.

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