Blacks Lag in Business Ownership, but Gap Is Narrowing

Blacks lag far behind whites and other minorities in business ownership, though there are signs the gap has started to narrow since the recession, new government data show.

Black-owned firms accounted for just 2.1% of the nation’s companies with at least one employee in 2014, according to the first instalment of a new annual survey by the U.S. Census Bureau. But nearly half of those black-owned firms were started in the past five years.

The new survey, released Thursday, is designed to provide a more timely portrait of a key slice of the U.S. economy. It comes amid concern about the slow pace of new business formation, the relatively weak economic recovery and tepid lending to small businesses.

Minorities and women continue to account for a disproportionately low share of business owners, but the demographics are beginning to shift. Blacks, who account for 12% of the adult U.S. population, were owners of 3.3% of the businesses less than two years old.

Women owned 20% of the 5.2 million companies for which demographic information was available, but 24% of young firms. It isn’t clear what portion of these young companies will survive.

“Technology has in many ways been a great equalizer because small and minority business owners can access labor cheaper and information more readily,” said Richard Taylor, a real-estate investor and executive in residence at Suffolk University in Boston who advises minority firms.

There was no demographic data for about 270,000 firms.

Unlike the Survey of Business Owners, which the Census releases every five years, the new Annual Survey of Entrepreneurs focuses on firms with paid employees, meaning it leaves out the self-employed.

The new report is based on a sample of roughly 290,000 employer businesses, and its data isn’t comparable to previous government studies because of differences in methodology, Census officials said.

The data highlight both the outsize role of large companies in the economy and the vast number of small firms. Public companies and other firms that can’t be classified by race, ethnicity or gender, while just 5% of the nation’s businesses, account for two-thirds of sales and more than half of employees. Yet, 89% of businesses—or more than 4.85 million firms—had fewer than 20 employees. They accounted for 11% of sales and 17% of employees.

Roughly 9% of the businesses had been operating for less than two years as of 2014. Among the nation’s 50 largest metro areas, Las Vegas had the largest share of young firms, while Cleveland and Milwaukee had the lowest. These newly established companies were most common in the hotel and restaurant, and transportation and warehouse industries.

White-owned firms accounted for 81% of businesses that could be classified by race or ethnicity or gender, while 9.7% were owned by Asians and 5.8% by Hispanics, according to the Census data.

Blacks owned less than 10% of businesses that could be classified in each of the top 50 metro areas.

Memphis, where 46% of the population is black, had the highest share with 8% black-owned businesses. Asians owned more than a third of businesses in Silicon Valley, while Hispanics owned 31% of firms in South Florida, the data show.

Black-owned businesses tended to be smaller, representing less than 1% of the total sales, according to the survey. Sales at black-owned firms averaged $915,000, below the $2.38 million average for white-owned firms. Sales averaged $1.19 million for firms with Asian ownership and $1.12 million for firms owned by Hispanics.

Annual sales averaged $1.2 million at firms owned by women and $1.3 million at those with split male-female ownership, compared with the $2.6 million in sales at firms owned by men. Among the top 50 metro areas, women owned the highest share of businesses in Denver, at 26%.

Thomas Boston, a professor of economics and international affairs at Georgia Institute of Technology, said blacks start out with less wealth, and they were hit particularly hard by the financial crisis because a larger share of their wealth was in home equity.

In addition, many black-owned firms have focused on doing business with the public sector, leaving them vulnerable to cutbacks in government spending and affirmative action programs.

“Black businesses, even though they have been growing, have lagged behind the growth of other groups,” said Mr. Boston, who also owns a consulting firm that focuses on minorities and small business.

Cultural factors also may play a role. “Entrepreneurship is just not pushed in our community,” said Malcolm Crawford, founder of a minority business association in Chicago.

“We teach our children to go to college so they can get a good job,” said Mr. Crawford, a real-estate investor. “We don’t have any place for them to come back and use what they learned at college inside the family business.”

[Source:-The Wall Street journal]