How the Census Bureau devalues Black businesses

Black Enterprise, June, 1996 by Margaret C. Simms

Although upbeat, Census Bureau data fails to show the true value black firms add to the nation's economy

IN DECEMBER 1995, THE U.S. CENSUS BUREAU released data on black-owned businesses from its 1992 Survey of Minority-Owned Business Enterprises. While the report indicated that black-owned businesses had increased by 46% between 1987 and 1992, the profile of these firms did not seem particularly encouraging in terms of the progress of black entrepreneurship in America.

The data showed that average annual sales and receipts for the firms surveyed was only $52,000, while 56% of the firms had receipts of less than $10,000. Ten percent of the firms had paid employees and these 64,478 companies accounted for 70% of gross revenue.

However, a recent survey by the Joint Center for Political and Economic Studies (in conjunction with BLACK ENTERPRISE and the National Minority Supplier Development Council) shows that the progress and outlook for African American businesses is much better than that indicated by the Census data.

Part of the problem with the Census Bureau report is its use of administrative data which includes only individual proprietorships, partnerships and Subchapter S corporations. Many larger firms are Subchapter C corporations and are not captured in the Census data. A comparison of the Census data for black-owned firms with those from the Joint Center's survey shows how this omission can skew the data presented in terms of industry distribution, sales and employment. An examination of the size and behavior of these larger, omitted firms presents a very different picture of black entrepreneurship and its contribution to economic growth in the African American community.

JOINT CENTER SURVEY

In late 1993, the Joint Center began a study of minority-owned businesses, with special attention to their potential for employing minority members and those from low-income communities. The data for this study was collected by surveying a sample of medium-sized and large minority-owned companies, along with a matching sample of non-minority firms. The initial minority sample consisted of 3,060 firms, including nearly 600 black-owned businesses surveyed annually by BLACK ENTERPRISE when it constructs its BE INDUSTRIAL/SERVICE 100 firms. In programs. The resulting database is rich and extensive. An initial analysis of the responding firms in our sample shows quite clearly that, as a group, they are not only different from the Census survey addition, the sample included just over 2,000 African American, Hispanic and Asian American companies affiliated with regional councils of the National Minority Supplier Development Council (NMSDC) in four states--California, Florida, Illinois and Texas. In 1987, these states contained approximately 50% of all minority-owned firms included in the Census survey.

The Joint Center's questionnaire was sent to 2,000 non-minority firms which were similar in sales volume, industry distribution and location. The questionnaires were mailed out in late 1994, with follow-up mailings in early 1995. The overall response rate for the minority firms, which are the focus of this discussion, was 21.9% for a total of 669 respondents. Rates were similar for both the BE and NMSDC samples.

The survey was designed to collect information on firm size, location, growth rate, initial financing, workforce characteristics, training opportunities and willingness to participate in public-private programs. The resulting database is rich and extensive. An initial analysis of the responding firms in our sample shows quite clearly that, as a group, they are not only different from the Census survey companies but compare very well with their non-minority counterparts. They differ from the non-minority firms in several respects, however. They are more likely to have minority employees and they are more likely to recruit in low-income neighborhoods. Nearly one-quarter said they always recruited in these neighborhoods, while only 10% of the non-minority firms said that was the case. They also were more like to have indicated a willingness to participate in programs to assist young people, welfare recipients and individuals from high poverty neighborhoods in making the transition to employment.

THE EMPLOYEE POTENTIAL WITH B.E. FIRMS

At press time, the analysis of the Joint Center's database was still under way and a final report incomplete. Instead, I focus on selected information from the 118 respondents on the BE list. While there is likely to be an overlap with the firms on the June 1996 BE 100s, the respondents are drawn from a much larger list and may include firms that have not made the BE 100s cutoff in terms of sales volume. Nevertheless, they will be referred to as BLACK ENTERPRISE firms because they were identified through BE.

Most of the BE firms responding to the survey are well-established companies; 69% indicated that they had been in business more than 10 years. Well over one-half (58.6%) are Subchapter C corporations while fewer than one in eight are partnerships or sole proprietorships. One third (32.2%) were in the services industry, with approximately one-half of them identifying their primary service as "professional services." The second largest proportion of firms was in the manufacturing industry.