In Search of Solid Ground: Understanding the Financial Vulnerabilities of Microbusiness Owners

The Corporation for Enterprise Development (CFED)

Author +
Lauren Williams & Kasey Wiedrich

Year: 2014

Microbusinesses contribute significantly to both nation-wide economic activity and their owners’ household balance sheets, but many remain financially vulnerable, struggling to make ends meet and build wealth over time. Despite the central role these businesses play in the American economy, little is known about how the typical microbusiness manages its finances, the major financial challenges they face or which components of financial capability lead them to business success. Nevertheless, this combination of knowledge, access and use of safe, appropriate financial products and services is undeniably central to financial security outcomes for both microbusinesses and their owners’ households.

To shed light on the many factors that contribute to or detract from microbusiness owners’ financial capability, CFED launched a study in 2013 that gathered insights from business owners themselves, identifying their greatest challenges and initiating a conversation about the suite of solutions that might address them. This study was designed to respond to the following questions:

  • What types of financial products and services are low- and moderate-income (LMI) microbusiness owners currently using?
  • What financial challenges do microbusiness owners face?
  • How influential are these challenges in constraining asset building and growth?

The findings from this study offer new evidence and confirm some assumptions about the microbusiness owners’ financial capability and financial needs. Our findings show that microbusiness owners’ business and personal finances are closely intertwined and reveal a number of ways in which microbusiness owners, especially the most disadvantaged among them, might be susceptible to financial shocks.

This expanded view of the financial lives of microbusiness owners suggests that addressing their financial capability needs could measurably improve the economic outlook for both the business and the owners’ household. Business ownership is a risky endeavor for any entrepreneur: a business’ profitability is impacted by external circumstances like consumers’ needs and preferences, competition from other businesses, changes in government policy, supply and production uncertainties, and any number of unexpected emergencies. These risks are further amplified when they coincide with an unstable financial footing, making every financial decision even more significant.

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Sample Characteristics
Business Owner Characteristics
Business Characteristics
Findings & Analysis
Product and Service Use Overview
Digging Deeper: Financial Product and Service Challenges Disproportionately Affect the Most Vulnerable
Digging Deeper: Cash Flow Difficulties
Digging Deeper: Low Savings and Vulnerability
Business Balance Sheets are Household Balance Sheets
Vulnerability Begets Vulnerability
Savings is Necessary, but Notably Absent
Appendix 1: Tables & Figures
Appendix 2: Online Survey Questions
Appendix 3: Phone Survey Questions