Curtis Reed, Chicago Region Manager for Middle Market Banking at JPMorgan Chase, shares his perspective on some of the pressing challenges facing Black entrepreneurs today and the role that the business community can play in elevating Black businesses and driving future growth.
The disruptions of the past year have cast a spotlight on the unique hurdles that Black business owners face, including lack of access to capital, financial education, and networking opportunities.
The JPMorgan Chase Institute recently shared that Black-owned businesses often face lower revenues, profit margins and access to cash, and are underrepresented among companies that have external financing. What’s more, over 400,000 Black-owned businesses shuttered between February and April 2020, making up 41 percent of those that permanently closed their doors.
This data is certainly confronting, but there are several actions that Black business owners can take to begin to overcome some of these challenges and better position their businesses for success.
Optimize working capital and cash flow
Working capital is the lifeblood of every company, allowing them to stay open, fund day-to-day operations, and invest and scale for their future. However, according to JPMorgan Chase Institute research, Black-owned businesses today hold materially less cash than white-owned organizations.
It’s critical for business owners to evaluate their short and long-term funding needs and refine their capital management strategy. This could be achieved by reducing operating costs, pivoting products and services to cater to new segments, changing distribution models or engaging potential new investors. Ultimately, these actions—paired with a strong strategy—can help businesses manage and mitigate risk during periods of uncertainty and continue to scale.
Lean into digitization
COVID-19 rapidly accelerated the adoption of digital tools to help businesses stay open and remain competitive, as business leaders grapple with new ways of working and tighter resources. In fact, JPMorgan Chase’s Business Leaders Outlook Survey found that more than half of midsize businesses have increased their use of online banking and treasury tools, including electronic payments, since the start of the pandemic.
Businesses that are leaning into online customer engagement have been able to reduce disruptions to their operations, and even find opportunities for growth through online sales channels. Today’s successful businesses are also harnessing digital financial solutions, like real-time banking, payments, and cash flow tools. Many leaders started using these tools out of necessity and are already seeing long-term benefits in driving efficiencies and simplifying financial operations.
Focus on adaptability and resiliency
The pandemic has forced many business leaders to re-evaluate their operating models and highlighted the importance of proactively creating a resiliency plan for a range of worst-case scenarios. More than half of businesses have made changes to their operating models or plan to do so permanently, showing that leaders are taking constructive action to safeguard their business’ future in this rapidly changing environment.
With many shifting their operations online over the last 12 months, cybersecurity has become one of the most important pillars of business resiliency. According to the 2020 Association for Financial Professionals Payments Fraud and Control Survey, 81% of companies were targets of payments fraud last year. To help protect their organizations against cyberattacks, executives today are making employee education and training their top priority.
Coming together to support Black-owned businesses
The local business community has an opportunity and a responsibility to lean in and better support Black business owners—whether it’s through advice, resources, mentorship or investment.
JPMorgan Chase recently announced a 5-year, $30 billion Path Forward commitment to help close the racial wealth gap in traditionally underserved Black and Latinx communities.
As part of this, we have launched a nationwide program right here in Chicago, which will provide more than 1,500 Black and Brown-owned small businesses with access to capital, 1:1 coaching, technical assistance and digital education. Our community managers will host workshops and pop-up shops to engage and learn from business owners, helping ensure that our financial health programming is tailored to local business needs. We’ve also opened a new community branch in Stony Island and upgraded our branch network in the South and West sides.
Last month, we also announced a $200 million co-investment commitment in Project Black – a strategic initiative led by Chicago-based Ariel Investments. The initiative will seek to position Black and Latinx-owned businesses as leading suppliers to Fortune 500 companies – supporting supply chain diversity. We’ve also committed $350 million to support under- served small businesses through efforts like expanding the Entrepreneurs of Color Fund, and we’re investing more than $40 million in Black and Latinx-led Minority Depository Institutions (MDIs) and diverse-led Community Development Financial Institutions (CDFIs).