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2018 Insights on Wealth and Worth — Business Owners

Putting wealth into action

Merrill Lynch clients have access to the trust and fiduciary services provided by U.S. Trust,* one of the nation’s largest and oldest providers of personal trust services. Each year, U.S. Trust conducts a study of trends affecting high-net-worth individuals.

The 2018 U.S. Trust Insights on Wealth and Worth® survey examines the impact that people and relationships have on business ownership, from initial funding to exit planning. The survey finds that business owners could be doing more to manage and plan for family members, employees and others who rely on the business.

Family Dynamics

For many business owners, the link between family and business goes back to their company’s founding. In fact, the survey showed the majority of all business owners (65%) use personal and family money to fund the start-up and early growth of their business.

Family is also involved in the company in different capacities for two-thirds (66%) of business owners. Most of these family members are involved in either senior (38%) or middle (21%) management (see Figure 1).

Family involvement in the business creates mixed feelings for business owners: 71% agree it provides a competitive advantage, while 69% say that it also complicates decision making. Additionally, 7 in 10 say it’s difficult to manage family dynamics and to separate the needs of family from those of the business.

Family business owners also cite the readiness of the next generation as a key challenge, both in terms of the next generation’s interest in taking over the business and in how to best prepare for leadership.

Impacting Employees

Business owners are acutely aware of the vital role their businesses play in the lives of employees. Taking on the responsibility for the livelihood of other people was the top concern owners had when contemplating the decision to own a business.

Employees are also a key consideration when it comes to running and growing a business. Attracting talent and retaining key employees are the two biggest challenges that business owners face, ahead of other operational, regulatory and financial issues (see Figure 2). Further, “people and leadership issues” was the number one reason given for why businesses fail.

As a result, investing in people is a priority for most business owners, with 59% planning to increase wages this year. Additionally, 4 in 10 plan to increase contributions to employee retirement plans and 46% expect to increase funding for employee health insurance.

Growth and Expansion

Most business owners are either maintaining or increasing business spending this year. To fund this growth, owners of midsized ($10 million to $100 million in revenue) and large companies (over $100 million in revenue) are more likely to reinvest profits from the business, while owners of smaller businesses ($1 million to $10 million in revenue) are most likely to tap into their personal savings or family resources.

The reduction in tax rates for corporations and pass-through businesses is seen as an opportunity by many business owners. Nearly 6 in 10 (59%) view the reduction positively, fueling their thinking about strategic investments over the next three years.

When asked about future plans, 7 in 10 business owners say they intend to expand products or services (see Figure 3), as well as expand into new territories within the U.S. and abroad—fueling job creation and further investment in employees.

Succession

More than half (51%) of all business owners (and two-thirds among large corporate owners) plan to leave their business within the next five years. Yet selling or transferring ownership to family is the exit plan for just 28% of business owners.

While ensuring that their family is taken care of financially is the primary concern of business owners considering an exit strategy, the impact on their key employees is also a very important consideration reported by 43% of owners.

And yet that sense of responsibility for others is not reflected in many succession plans. While about two-thirds (63%) of all business owners, including those already retired, say they have or had a business succession plan upon leaving it, only one-third have a robust, documented plan that’s been communicated to those it affects (see Figure 4).

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*U.S Trust is a division of Bank of America, N.A., Member FDIC and a wholly owned subsidiary of Bank of America Corporation

Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.

Study Methodology

The 2018 U.S. Trust Survey of HNW Business Owners is conducted as part of the 2018 U.S. Trust Insights on Wealth and Worth® survey, a nationwide survey of 892 high-net-worth and ultra-high-net-worth adults with at least $3 million in investable assets, not including the value of their primary residence.

U.S. Trust surveyed 203 business owners, including 155 current owners and 48 retired owners. All respondents own or owned businesses with annual revenues of $1M to greater than $100M.

U.S. Trust commissioned the independent research firm Phoenix Marketing International to conduct the survey and compile findings. The double-blind survey was administered online over a six-week period, beginning in January and completed in February 2018. Quotas were established by age and investable asset size and specified for business owners in order to ensure sufficient representation of groups of interest. The final sample was weighted to the true representation of high-net-worth households by age, asset level and business ownership and is not representative of U.S. Trust clients. Asset information was self-reported by the respondent. Verification for respondent qualification occurred at the panel company, using algorithms in place to ensure consistency of information provided, and was confirmed with questions from the survey itself. All data have been tested for statistical significance at the 95% confidence level.

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