State of Women Owned Business in Virginia

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1 State of Women Owned Business in Virginia Prepared by Chmura Economics and Analytics November 2, 2015

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3 Executive Summary This inaugural State of Women- Owned Businesses in Virginia was undertaken by the National Association of Women Business Owners (NAWBO) Richmond Chapter 1 to better support women entrepreneurs in Virginia and understand the characteristics of their businesses. The findings, which are based on a survey 2 of Women Owned Business (WOBs) in Virginia, are summarized in this executive summary and detailed throughout this report. Preliminary data from the Census 2012 Survey of Business Owners shows that Virginia WOBs, as well as those in the nation, have experienced robust growth in recent years. The number of WOBs in Virginia grew an annual average of 4.3% per year from 2007 to 2012, slower than 5.0% for the nation but faster than the overall growth rate of 0.5% per year for all firms in Virginia. Chmura estimated that the number of women- owned businesses in Virginia would grow to 277,154 in 2015 or 5.3% per year from 2012 to Meanwhile, the number of WOBs in the nation was estimated to increase to 11.8 million in 2015 or 5.9% per year. The number of WOBs in Virginia was 237,371 in 2012, accounting for 36.3% of total firms in the state. Nationally, there were over 9.9 million women- owned businesses in 2012 that accounted for 36.0% of all firms. In 2007 and 2012, Virginia ranked twelfth in the nation in terms of the number of women- owned businesses. In 2012, the total number of paid employees in Virginia WOBs was 270,683. It is expected to increase to 328,340 in Nationally, that figure was nearly 9.0 million in 2012, which is estimated to reach 10.7 million in The number of paid employees does not include business owners. Including estimated business owners, the resulting average employment per WOB in Virginia was 2.4 in 2012, which is expected to increase to 2.5 in The average firm size from the Census survey is significantly smaller than the average firm size of WOBs reported in the Chmura survey (9.7 per firm). The total revenue of all WOBs in Virginia was $45.0 billion in 2012, accounting for 5.3% of the revenue of all firms in the state. Nationally, total revenue for WOBs reached $1,616.3 billion in Chmura estimated that total revenue for WOBs would grow to $57.2 billion in 2015 for Virginia and $2,021.7 billion for the nation.

4 Executive Summary cont d Average revenue per Virginia WOBs was $189,447 in 2012, significantly lower than the figure reported in the Chmura survey, likely due to the differences in firm size between the Census and Chmura surveys. The Census survey implied that the average revenue per worker in 2012 for Virginia WOBs was $77,631, closer to the average revenue from the Chmura survey that was $85,369 per worker in In 2012, total payroll of all WOBs with paid employees was $9.9 billion in Virginia and $290.5 billion nationally. Chmura estimated this figure would grow to $12.7 billion in 2015 for Virginia and $363.7 billion for the nation. Average payroll per paid worker for Virginia WOBs with paid employees was $36,709 in This figure is slightly higher than the result from the Chmura survey, which found the average payroll was $34,692 per worker in WOBs that responded to the Chmurasurvey are sole business owners that started their business from scratch. The vast majority (73%) of WOBs responding to the survey are sole business owners, while close to a quarter of them (24%) are partial owners. This pattern is consistent in all three major MSAs in Virginia. Most respondents (86%) reported that they started their business from scratch. Seven percent of respondents purchased their business, and 4% of respondents had their business turned over to them. This pattern is generally consistent in all three MSAs. Responding WOBs have been in business an average of 11.9 years with nearly half in the professional and business services sector. On average, WOBs in Virginia that responded to the survey have been in business for 11.9 years. The average business lifespan in the Richmond, Hampton Roads, and Northern Virginia MSAs is 11.3 years, 13.2 years, and 12.2 years, respectively. Industry- wide, WOBs in the construction sector have been in business for an average of 21.1 years. In terms of industries represented by WOBs in the Chmura survey, 45% of respondents are in the professional and business services (PBS) sector. The other top industry sectors are other services, 3 trade, and construction.

5 Executive Summary cont d Slightly more than half of the responding WOBs held certifications with SWaM being the most popular. A little over half (51%) of businesses held certifications, while 12% were not certified and 37% reported that they did not know or were not sure about their certifications. A higher percentage of WOBs in the Richmond MSA possess a certification, while the percentage is lowest in Northern Virginia, with only 36% of respondents having a certification. Among three certifications Disadvantaged Business Enterprise (DBE); Small, Women- owned, and Minority- owned Business (SWaM); and Women s Business Enterprise National Council (WBENC), the most popular is the SWaM certification. Most certified WOBs (89%) possess a SWaM certification, 14% have a DBE certification, and 9% have a WBENC certification. Similar to national WOB statistics, 4 WOBs in Virginia tend to be small in employment size, but grew faster than other businesses in the state in Given the small employment size, overall revenue and payrolls were modest in 2014, but the vast majority of WOBs reported a profit. In 2014, the average number of employees per WOB in Virginia was estimated to be 9.7. Of all surveyed WOBs in Virginia, 79% can be classified as small businesses that employee ten or fewer people. WOBs in the Northern Virginia MSA tend to have more employees than the other two MSAs. WOBs in the construction sector averaged 20.4 employees per business in 2014 much higher than the average employment of all WOBs. On average, employment in WOBs in Virginia expanded 9.7% from 2013 to This is much faster than the 0.6% overall employment growth in the state for the same period. Northern Virginia WOBs reported 12.9% employment growth from 2013 to 2014 faster than growth in the other two MSAs. Average sales for WOBs responding to the survey were estimated to be $779,119 in Chmura s survey indicated that total payroll accounted for 40% of gross sales, for an average of $316,618 per business. Among the three metro areas, average revenue and payroll per business in Northern Virginia are larger than in the other two MSAs. Of all WOBs responding to the survey that reported profit data, 87% made a profit in 2014, while 13% lost money. On average, the profit margin for WOBs responding to the survey was estimated to be 7.5% in Profit margins for WOBs are fairly consistent among all three MSAs.

6 Executive Summary cont d WOBs in Virginia tend to rely on personal finances for funding their business, and only a small percentage use structured borrowing such as commercial or government loans. The majority of WOBs responding to the survey did not borrow money in Of all responding businesses, 78% did not borrow any money, and only 21% borrowed money. This pattern is similar across all three MSAs. While only 21% of responding WOBs in Virginia borrowed money in 2014, the percentage of WOBs using Small Business Administration (SBA) loans and Virginia Small Business Financing Authority (VSBFA) loans is even lower: 5% had an SBA loan, and none had a VSBFA loan in In general, a credit card is the most popular tool for WOBs in Virginia to fund their business needs. Over half (51%) of responding WOBs in Virginia reported that they had used a credit card to access funding. This is followed by commercial bank loans (27%) and family or friends (22%). Other funding such as home equity and personal savings are also used by WOBs in Virginia. For WOBs that have used commercial bank loans, 38% rated them as insufficient or very insufficient. These rated better than government loans, where 57% of borrowers rated them as insufficient or very insufficient. Finally, 71% of WOBs that used government contracts reported this opportunity is insufficient or very insufficient. About 43% of responding WOBs expressed a need for mentorship. For those needing mentorship, the greatest need is in the area of business operations. This is followed by needs in business development/client management and marketing/public relations. Younger businesses have a greater need for mentorship than do mature businesses. There are acute mentorship needs for young WOBs. Of responding WOBs that have been in existence for 1 year or less, 68.4% said they need mentors. For those in business between one and five years, 48.2% expressed a need for mentors. The main challenges for WOBs in Virginia are in the areas of fundamental business operations and business development. Over 50% of WOBs responding to the survey listed business operations as their main challenge. This includes financial management, time management, staffing, business development, business administration, and funding sources. Close to 30% of responding WOBs in Virginia said business development and client management were their main challenges. These areas include finding clients, winning contracts, building client relationships, and networking. Finally, 16.3% of WOBs chose marketing and public relations as their main challenges.

7 Executive Summary cont d An open- ended question about how NAWBO and its partners can help address challenges faced by WOBs in Virginia revealed that networking was by far the most popular service NAWBO and its partners can provide. In light of the fact that respondents value networking opportunities where they can connect with their peers in different industry sectors, NAWBO and its partners could continue to organize network events. As a business owner, time constraints prevent some WOBs from attending networking events. One opportunity for NAWBO and its partners is to have those events during off- work hours. Women business owners in young businesses have strong needs for mentors. NAWBO and its partners can connect them with more seasoned business owners to serve as mentors. WOBs could benefit from NAWBO and its partners in business development, including training and workshops that focus on business development and management. To be flexible, NAWBO and its partners could offer those training opportunities online.

8 References 1 The National Association of Women Business Owners (NAWBO) Richmond Chapter contracted Chmura Economics & Analytics (Chmura) to perform this study. Chmura is a full- service economics consulting firm with proprietary labor market software that includes its JobsEQ technology platform that is used in over 30 states in the nation. Chmura is headquartered in Richmond Virginia with offices in Cleveland Ohio and Spokane Washington. 2 All but five of the 209 Virginia WOBs responding to the Chmura survey are from the state s three largest metropolitan statistical areas (MSAs) Northern Virginia, Hampton Roads, and Richmond. 3 The other services sector includes firms in the following sectors: arts, entertainment, and recreation (NAICS 71); accommodation and food services (NAICS 72); and other services except public administration (NAICS 81). 4 American Express OPEN, The 2014 State of Women- Owned Businesses Report: A Summary of Important Trends