Leveling The Playing Field For Underserved EntrepreneursSeptember 18, 2023 – Articles
Dinsmore attorney Ben Carnahan co-wrote the following article with Jeff Clawson for Cleveland Bar Association's publication, Bar Journal. Ben is a banking and financial services partner in the Firm's Cleveland office.
Bankers, lawyers and business professionals all love a good high net worth client. But, not all of us can represent the fat cats all of the time, nor should we. Assisting underserved individuals looking to start a new businesses is an often overlooked and wrongly assumed dead end. Providing underserved individuals and communities with legal services, educational resources, support networks and policies that allow them to access information not typically available to them, drives economic empowerment and contributes to a more inclusive and prosperous society. Nonprofit entities, like Growth Opportunity Partners, or Growth Opps, can help minority and women-led businesses, and businesses in low and moderate income areas who are often bypassed by more traditional lending channels, access capital to finance growth and startup opportunities.
Underserved entrepreneurs encounter systemic barriers and have limited access to the resources necessary for starting or growing a business. Marginalized communities can include racial and ethnic minorities, women, individuals with disabilities, those from low-income backgrounds and members of the LGBTQ+ community. These groups face structural inequalities that hinder their access to capital, infrastructure (both physical and legal), networks, education, mentorship and markets. Recognizing the importance of equal opportunities, understanding the specific needs and challenges of underserved entrepreneurs and the opportunities available to them, is crucial to fostering a more inclusive entrepreneurial ecosystem with “a rising tide lifts all boats” mentality.
Access to capital and financial resources remains a significant challenge in underserved communities, as traditional lending criteria often restrict the ability to secure funding. In many areas, day-to-day living is precarious, and learning about the banking system, credit reports, and business structure are not priorities. Members of these communities often lack the networks and connections that many in more socioeconomically prosperous communities often take for granted, such as mentorships, business partnerships and marketing opportunities. Both conscious and unconscious biases, and stereotypes in the business world, pose additional hurdles to accessing the knowledge and capital required to start and operate a modern business. Entities like Growth Opps can help underserved business owners address these challenges with tailored legal services, financial assistance, mentorship and educational resources.
The more fortunate pass on experiences from their careers to family members, friends and those within business networks, often without expecting anything in return, simply to help others avoid the headwinds they may have encountered. Enterprising attorneys dedicated to client service, along with entities like Growth Opps, can help fill the gap for underserved business owners by providing access to this priceless knowledge. Once given a fair and level playing field, underserved entrepreneurs can make exponential contributions to economic progress in their communities.
All entrepreneurs should begin by clearly defining their business idea and model, including the products or services they plan to offer, their target market and their unique selling proposition. Creating a comprehensive business plan outlining goals, strategies, financial projections and marketing plans will serve as a roadmap to identify legal issues, which is critical to securing funding from investors and financial institutions. Legal issues that entrepreneurs should strongly consider at early formation include:
1. Choosing the Right Legal Structure:
Options include sole proprietorship, partnership, limited liability company (LLC) or corporation. Each structure has different legal and tax implications, so you should consult with an attorney or accountant to determine the best fit for your business .
2. Registering Your Business:
Registering the business is an essential step in establishing its legal existence. This typically involves filing the necessary paperwork with the appropriate government agencies, including the secretary of state. Failure to register your business has consequences, such as being unable to seek recourse in courts of law.
3. Protecting Intellectual Property:
Safeguarding your intellectual property is vital to prevent others from using or copying ideas, inventions or brand. Consider filing for patents, trademarks or copyrights to protect unique products, services or creative works. Consult with an intellectual property attorney to understand the best strategies for the business.
4. Complying with Employment Laws:
When hiring employees, it is crucial to comply with federal, state and local employment laws. Understand minimum wage, overtime pay, anti-discrimination laws and workplace safety regulations. Develop employment contracts, procedures and policies that align with these laws to protect your business and employees.
5. Securing Necessary Permits and Licenses:
A business may need specific permits or licenses to operate legally, depending on the industry and location. Research and obtain the required permits, such as health & safety permits, liquor licenses or other professional licenses. Failure to comply with these regulations can result in fines or even closure of the business.
6. Understanding Tax Obligations:
Make sure you understand tax obligations. This includes registering for an Employer Identification Number (EIN), collecting and remitting sales tax and filing business tax returns. Consider consulting with a tax professional to navigate the complexities of business taxation.
7. Drafting Contracts and Agreements:
Contracts and agreements are essential for protecting your business interests. Whether it is with suppliers, clients or partners, clearly define the terms and conditions of business relationships. Consult with an attorney to draft legally binding contracts that mitigate risks and protect your rights.
8. Complying with Privacy and Data Protection Laws:
If a business intends to collect or store customer data, it is crucial to comply with privacy and data protection laws. Understand regulations and implement appropriate measures to safeguard customer information.
Planning early and making sure the proper legal foundation is in place for the business will avoid costly mistakes later on that could irreparably harm the startup venture at crucial early stages. While it may be tempting for entrepreneurs to skip these initial steps due to the potential legal costs, doing so is a recipe for failure. Failure to have the right legal infrastructure in place can result in expensive lawsuits, fines and penalties that can ruin a business before it gets off the ground. Educating new entrepreneurs and connecting them with the appropriate networks, including long-term, cost-effective legal partners is critical.
Once the appropriate legal foundation has been established, it is imperative to empower underserved entrepreneurs by connecting them with mentorship programs, business incubators and networking events that bring together industry professionals and investors. These connections provide valuable guidance, access to capital and collaboration opportunities, which increase their chances of building successful and sustainable business.
Collaborating with community organizations, government agencies, corporations and educational institutions is also a powerful way to bring resources to underserved business owners. Community organizations often possess insights into the specific needs and challenges faced by entrepreneurs in their local communities. Partnering with organizations that have developed a presence in local communities builds trust, and leverages expertise to provide targeted support. Municipal and local governments can also play a vital role through community development departments by offering initiatives tailored to specific needs, such as storefront renovation grants or equipment acquisition loans. Collaboration with these agencies is crucial because these programs are often not high profile, and even those working in community development may not be aware of these opportunities. Making an intentional effort to stay aware of resources offered in a community streamlines access to resources and can help connect underserved owners with the available support and programs.
Assisting underserved entrepreneurs in starting new businesses is not just a matter of social responsibility, but an essential driver of inclusive economic growth. By addressing their unique challenges and providing them with the necessary resources, support networks and policy advocacy, we unlock their untapped potential and contribute to a more prosperous and equitable society. Creating a comprehensive and effective ecosystem that empowers underserved entrepreneurs requires collaboration, targeted interventions and a shared commitment to fostering diversity and inclusion.