Mark Eagleton speaks about some recent findings in the U.S. Trust Insights on Wealth and Worth Survey
Business owners and entrepreneurs play a significant role in wealth creation within the Kansas City economic landscape. The recently released U.S. Trust Insights on Wealth and Worth Survey, a study of 200 high-net-worth business owners in the U.S., revealed that, despite its challenges, business owners at all ages are thriving. But they must prepare for the future for their financial success to endure.
Business owners’ entrepreneurial spirit has an inclination for independence; therefore, they are highly self-motivated and want control over their personal and business lives. They also believe they will have more opportunity to create significant wealth, provide financial security for their families and be able to open doors for other aspiring professionals.
In most cases, they are right. The survey found that people who own their own business have a meaningfully higher annual household income than other high-net-worth households. In fact, 59 percent of non-retired, non-business owners have an annual income greater than $200,000, and only 9 percent earn more than $1 million a year. Meanwhile, 77 percent of non-retired business owners have an annual income greater than $200,000, and 26 percent earn $1 million or more—the majority of whom are under the age of 49.
While both older and younger business owners are equal contributors to the economy, there are vast differences among them. First, 95 percent of Baby Boomers are the first generation to own their own business, while this percentage decreases to 75 percent for younger business owners. This means that one-quarter of owners under the age of 49 are heirs to a family business. Interestingly, older business owners are less likely than younger entrepreneurs to create a succession plan to ensure continuity of their business.
Furthermore, business owners are very community oriented and believe it is their responsibility to make the lives around them better—a quality prevalent among our KC businesses. Beyond creating jobs, business owners are very involved in philanthropy and community service. However, young business owners are notably more likely than their older counterparts to feel that business ownership empowers them to create a positive impact on society. Despite these generational discrepancies, both older and younger business owners are in widespread agreement on the biggest challenge facing the future growth of their businesses: the impact of taxes.
Taxes are the biggest obstacle for owners when it comes to growing their businesses. Therefore, they have taken a variety of actions such as reducing staff, eliminating or reducing healthcare benefits, and/or moving their company to a state with lower costs or lower personal income tax rates. This happens often in KC as people decide whether to base their business in Missouri or Kansas depending on their tax preferences.
Another big challenge is succession planning. Although business owners generally feel responsible for job creation in today’s economy, as well as for future generations, more than half do not have a business succession plan in place. Those surveyed claim this is because they do not plan on retiring soon or they are not aware of the succession planning process. Unfortunately, a majority of business owners do not plan on passing their business on to the next generation, but instead plan to sell or close their company. This would thwart wealth creation not only in Kansas City, but in the U.S. as a whole.
Despite the advantages of having a higher annual household income, business owners’ wealth places a large responsibility on their shoulders. U.S. Trust found that more than half of business owners provide financial support to other adult family members including parents, grandparents, siblings, nieces and nephews.
Many have substantial personal assets invested in their business. Costs and pressures are always on their minds since these hold immediate implications to their businesses and families’ financial security. Their personal and business finances are unavoidably intertwined. This creates a constant juggling act but, most times, the business wins and owners put off important personal actions that can affect their overall financial security, including business succession planning, financial planning, estate planning, wealth structuring and investment decision-making.
Entrepreneurs should look to financial advisors to help them stay financially organized and secure. By doing so, they can continue to be successful not only for themselves, but for their families and the overall economy.
Mark Eagleton is a market executive for Kansas City at U.S. Trust. He is responsible for leading a team of advisors who craft complex financial solutions, both credit and investment, for high-net-worth individuals. For more information, visit ustrust.com.