Who runs the world?
Well, even if they aren’t “in charge,” family-owned businesses are a powerful force for our economy. But they face significant challenges that must be addressed head-on.
Today, we’ll talk about why small family businesses play such a vital role in the U.S economy, the current struggles many owners face, and what to do to help them thrive.
Family Businesses Catalyze The Economy
Family businesses do wonders for the economy. In this case, the numbers speak for themselves:
Family-owned companies comprise 64% of the gross domestic product (GDP).
They also have a hand in job creation—78% of new jobs come from family businesses.
Family businesses generate 62% of the country’s total employment.
Just looking at the numbers, you can see these businesses are instrumental in local, national, even global economies, making them a central part of the workforce.
Recent advances are empowering small businesses even more than they are threatening them. In reality, the glass is more than half full.
While it’s easy to paint “Corporate America” as the deep-pocketed rival set on absorbing your business, the tide is turning. Due largely to the explosion of software-as-a-service (Saas) applications, enterprise-grade cloud technology is available to small businesses at a fraction of the cost compared to a decade ago.
According to the U.S. Bureau of Labor Statistics, information technology, hardware, and services prices decreased over 40% between 2006 and 2019. So, while the aggressive corporate scale strategy is an unmistakable battle cry, the difference now is that we, as small companies, have the tools to fight back.
But, They’re Struggling. Here’s Why!
The reality is that roughly 43% of business owners are looking to retire, and less than half don’t have a successor.
Proper exit strategies for business owners safeguard their retirement and work to ensure the longevity of a business that’s so imperative to the community.
There’s a lot that goes into planning an exit from your business. That is the main reason why business owners fail to plan—there’s so much work to do, and many don’t know where to start.
But, by not thinking about this critical aspect of your financial plan, there’s a missed opportunity for a well-thought-out retirement and a clear path forward for your company, employees, and community.
Some exit plan considerations are succession planning, selling the company to a co-worker or co-owner, deciding to stay in the business part-time or as a consultant, timing, and many other variables.
Technology And Enterprise Value
The current business landscape requires a skillful use and application of modern technology, so it’s essential to ensure you upgrade your systems to today’s standards. Because if you don’t, it’s so much easier for larger corporations to acquire you in the name of “economies of scale,” aka decreasing costs and increasing production.
You may have already noticed this cycle in one form or another. It’s all too easy for small companies to lose business to the faster and more efficient corporate giants (it also doesn’t help that they pay their employees a lot more, too).
To help combat these challenges, you want your business to have a solid, strong, and effective leadership team for the future. This group can guide the company and help it stay nimble enough to grow and change to exceed industry standards.
This next part may be challenging to hear: your business should be able to run without you efficiently. As a business leader, you want to inspire and grow a team that can successfully usher the company into its next season.
When you have competent and inspirational leadership, you cultivate a healthy and robust culture. You want to take care of your employees—listen to their ideas, needs, and concerns, compensate them fairly, offer competitive benefits, etc. You may even consider profit-sharing, equity ownership, and other creative compensation tools to give your employees more skin in the game. Remember, your company is only as strong as the team that supports it.
To Thrive, Family Business Owners Need A Reliable Financial Plan
Given the important role family businesses play in society, there must be a plan to keep them operational for years to come. That’s why we’re passionate about helping owners craft a financial plan and succession strategy that considers their needs and protects their business’s needs as well—we thrive in that intersection.
The truth is that many business owners feel that they can never retire.
However, business owners need to shift their mentality about retirement. Your business and its employees can’t prepare to run forever if you are unwilling to let go.
We understand that this can be an emotional process, as so much of your identity is tied up in your business.
As you consider retirement, try to figure out how to infuse the same passion you have for your company into your retirement plan. For instance, maybe you’ll want to start a new business, become a professional investor, or pivot into consulting as part of your retirement plan.
Through family business financial planning, there are numerous ways you can continue to do what you love and make an impact, all while doing what’s right for the business you care so much about.
We want to help you bring thoughtfulness and a strategy to your business and your personal financial plan.
Craig Toberman is a Partner at Toberman Becker Wealth – a fee-only, fiduciary financial advisor based in St. Louis. He assists families and businesses with strategic financial planning and long-term wealth management. He has over a decade of experience in financial services and has crafted custom financial plans for hundreds of families and businesses.