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Why do so many black owned businesses fail?

Did you know that 80% of small business fail within their first year and only 44.1% survive to the fifth year? The failure rate can be attributed to a wide range of reasons from underestimating competition to a lack of financial planning and the effects of cashflow problems, but it is apparent that there are other forces at play too.

People who start small businesses are motivated by the opportunity to make money and create employment in their communities, but some have more barriers to growing a sustainable business than others. These obstacles correlate directly to their ethnicity and gender.

A recent study by the Enterprise Research Centre (ERC) found that of 600 London businesses, 48% of businesses run by ethnic minority leaders have suffered an ‘existential crisis’ within the past five years (15% greater than ventures run by white entrepreneurs). Building any business is a challenge, but black owned businesses and entrepreneurs from minority groups feel the impact more.

We know that lack of ambition is not the issue – data from the Global Entrepreneurship Monitor identified that people from non-white backgrounds are more than twice as likely to be early stage entrepreneurs.

How does a great business idea translate into a sustainable business? Through a well thought out business plan. Having a clear pathway to achieving business goals is critical for business success. A business is more than thinking about how you are making money today and tomorrow; it’s about making strategic plans for sustainable business development through a tailored business plan, brand development program and digital marketing.

Research has also shown that many black business owners have had no previous work experience in a similar business. The lack of opportunities for acquiring relevant experience means that they are by default starting their business on a back foot. The key to overcoming this is through education and mentorship. Just because you don’t have the skills right now, does not mean that you can’t develop them.

The research found that black business owners are most likely to seek business advice and guidance from friends and family, but this needs to be limited to emotional support. To succeed you need to be consistently mentored by people who have experience in the field who can help you to learn business best practices and give you the tools to succeed.

The battle between the banks and how they distribute funds to non-white entrepreneurs is well documented. Evidence has shown that non-white owned businesses are four times more likely to be declined a loan and, if they are offered one, the interest rates are set higher than their white counterparts. This lack of access to capital stops black owned businesses from being able to invest in their venture to produce an optimal return on their investment and it prevents sustainable business development.

BBA is committed to helping our clients achieve business success; we bridge the gap between your business dream and reality.

From financial planning for startups to sourcing capital and providing tailored business support, we can help you create a sustainable and growing business. Contact us today to find out more.



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