Three out of Four Small Businesses in Miami Turn a Profit Yet Many Have Limited Cash Buffers, According to New JPMorgan Chase Institute Research

Today, the JPMorgan Chase Institute released new research, showing the correlation among characteristics like home values, college education and the racial, ethnic, and foreign-born composition of Miami communities and significant factors of small business financial health. Given data from a sample of 52,000 businesses operating in all 178 Miami ZIP codes and a panel sample of 32,000 Miami small businesses active in 2013, the JPMorgan Chase Institute determined that, three out of four small businesses in Miami turn a profit, yet many have limited cash liquidity.

In 2017, Miami had the 12^th highest metropolitan area gross domestic product (GDP) in the country, which accounted for over two percent of the national GDP. Small businesses might have benefitted from and contributed to Miami’s economic strength, with the median profit margin of Miami small businesses being 13.9 percent. However, many small businesses had limited cash liquidity. One-third had seven or fewer days of cash liquidity, while less than half of small businesses had at least fourteen cash buffer days – or the number of days a business could withstand spending without income.

“Analyzing how community characteristics – especially in vibrant, urban communities like Miami – correlate to the financial health of small businesses within those communities is a key factor in understanding small business outcomes,” said Diana Farrell, President and CEO of the JPMorgan Chase Institute. “This report aims to identify where growth could be contributing to Miami’s economic strength.”

This report builds on previous research from the JPMorgan Chase Institute on community-level differences in small business financial outcomes, exploring how profit margin and cash liquidity differ across communities and how socioeconomic conditions may vary given the financial performance of small businesses.

The new report, “Small Business Financial Outcomes in Miami Communities,” finds that:

• While the majority of Miami small businesses are profitable, many have limited cash liquidity.
  • Three out of four small businesses in the Miami metro area turn a profit and the median small business has 11 cash buffer days.
  • The median small business in Miami has fewer cash buffer days than the median business in our full sample of 25 U.S. metro areas. One-third of small businesses in Miami have seven or fewer days of cash liquidity, and less than half of small businesses have 14 or more cash buffer days.
  • The median profit margin for Miami small businesses is 13.9 percent, which is similar to the JPMorgan Chase Institute’s broader sample of 25 U.S. metro areas.
• Small businesses in majority Black, Hispanic, and foreign-born communities in Miami have significantly lower profitability and cash liquidity than businesses in majority White communities. Less than 10 percent of majority Black, Hispanic, or foreign-born communities in Miami have many very profitable small businesses (with profit margins over 20 percent), compared to 44 percent of majority White communities, and the typical small business in more than 80 percent of majority non-White communities has a cash buffer of two weeks or less.
  • The typical small business had median profit margins over 20 percent in only nine percent of majority Hispanic communities, three percent of foreign-born communities, and no majority Black communities, whereas the typical small business had profit margins over 20 percent in 44 percent of majority White communities.
  • While small businesses in 60 percent of majority White communities have at least two weeks of cash liquidity, just over one-in-six majority Hispanic communities have a median of at least two weeks of cash buffer.
  • There are also industry differences across Miami communities – small businesses in majority White communities are overrepresented in high-tech services, healthcare services, other professional services, and real estate. Small businesses in communities with majority non-White populations generally have a higher share of small businesses in the construction, repair & maintenance, restaurant, and retail industries.

Overall, this report describes the financial health of Miami’s small business sector, identifying where any business growth may be contributing to Miami’s economic strength.

About the JPMorgan Chase Institute

The JPMorgan Chase Institute is a think tank dedicated to delivering data-rich analyses and expert insights for the public good. Its aim is to help decision makers–policymakers, businesses, and nonprofit leaders–appreciate the scale, granularity, diversity, and interconnectedness of the global economic system and use timely data and thoughtful analysis to make more informed decisions that advance prosperity for all. Drawing on JPMorgan Chase & Co.’s unique proprietary data, expertise, and market access, the Institute develops analyses and insights on the inner workings of the global economy, frames critical problems, and convenes stakeholders and leading thinkers. For more information visit: JPMorganChaseInstitute.com.

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