African American small business owners are optimistic about the year ahead
As we celebrate Black History Month, it’s important to honor African American entrepreneurs who have started businesses and contributed to the prosperity of their communities by driving economic growth, creating jobs, participating in community organizations, and inspiring others to pursue their own entrepreneurial dreams. To gain a better understanding of how these courageous entrepreneurs feel about the future of their business, we asked 300 African American small business owners about profitability and future plans, as well as the risks they face and how they are preparing for them.
Optimism wins the day
Ninety percent of African American survey respondents who expect to be in business for the next 12 months said they agree or strongly agree with the statement, “I’m optimistic about the year ahead for my business.” The reasons for their optimism include:
• New customers (48%)
• New products (38%)
• Steady or improving demand (35%)
Profitability in the year ahead
Fifty percent of African American small business owners feel the same about the current state of this country’s economy compared to a year ago, and 38% feel it has gotten better.
More than four out of five (86%) African American small business owners said they consider their business to be profitable. An even higher number, 88%, expect that their profits will remain the same or increase in the next 12 months.
Investing in the business
The African American small business owners who responded to the survey indicated that they are less likely to seek funding for their business this year than last year. In 2019, 77% sought funding to run their business, with 32% using a bank loan for that purpose.
Seventy-one percent of respondents say they’re likely to seek funding in 2020. The most popular sources of financing will be:
• Credit card (29%)
• Bank loan (25%)
• Personal savings (cash) (15%)
Managing the business for the long term
Keeping your eye on the prize is critical to business success, and the African American small business owners we surveyed understand this. The top three goals they plan to focus on in the next 12 months are:
• Increasing productivity (46%)
• Improving customer service (35%)
• Retaining employees (33%)
We specifically asked these small business owners if they have thought about succession planning. Eighty percent of respondents said they have, with 44% indicating they plan to sell or leave the business to family members.
Recognizing and mitigating risk
Despite their optimism, African American small business owners are realistic when it comes to the risks they face. The top internal risks they identified were:
• Paying down debt (24%)
• Maintaining profitability (21%)
• Not attracting new clients (20%)
• Theft or loss of data (20%)
In terms of government or political risk to their business success, 20% cited taxes and 11% named economic growth as being areas of concern. Seventy-four percent of African American small business owners said their business is prepared for an economic downturn. Steps they’ve taken to prepare include setting up an emergency savings fund (38%), opening a line of credit (37%), reducing expenses (36%), or taking other steps. Thirty percent of African American respondents have set up a side hustle to earn extra income.
For additional protection against risk, almost two-thirds (63%) of African American small business owners have business insurance. Another 24% plan to purchase it in the next 12 months. Just 13% do not have insurance and don’t plan to purchase it.
The survey was conducted by Wakefield Research among 300 African American small business owners, between November 20 and December 4, 2019, using an email invitation and an online survey. Results of any sample are subject to sampling variation. The magnitude of the variation is measurable and is affected by the number of interviews and the level of the percentages expressing the results. For the interviews conducted in this particular study, the chances are 95 in 100 that a survey result does not vary, plus or minus, by more than 5.7 percentage points from the results that would be obtained if interviews had been conducted with all persons in the universe represented by the sample.
2020 Hiscox Small Business Owner Risk Study
In addition to this survey of African American small business owners, we also surveyed a national sample of 1,000 small business owners and asked them about the future of their business over the next 12 months. To learn more, download the 2020 Small Business Owner Risk Study.