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U.S. Trust Insights on Wealth and Worth™ Finds Business Ownership Is Thriving, but Constrained by Taxes, Talent and Lack of Planning

Young Wealthy Entrepreneurs Seek Business Ownership With Purpose

Wednesday, September 18, 2013 9:30 am EDT

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NEW YORK

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"Many of these owners have substantial personal assets invested in their business, therefore business costs and tax pressures are never far from their mind as they can carry significant and immediate implications to the owner, their business and the entire family's financial security."

Business ownership at all ages is thriving as a new generation of young entrepreneurs inherits family wealth, including many of the businesses created by baby boomers, according to findings released today from U.S. Trust’s 2013 Insights on Wealth and Worth. The study of 200 U.S. high net worth business owners found generational differences in the motivation for owning a business but widespread agreement on the biggest challenge to future growth.

Key findings include:

  • The top reason business owners gave for wanting to start or own their own business is the desire to control their own destiny (60 percent).
  • Younger business owners (79 percent of Gen Y and 54 percent of Gen X) are notably more likely than those who are older (35 percent) to feel that business ownership empowers them to make a positive impact on society.
  • Business owners believe that by owning a business, they are more likely than people who work for someone else to be fulfilled in their work (72 percent), create significant wealth (67 percent), provide financial security for their family (66 percent) and create opportunities for others (58 percent).
  • Ninety-five percent of baby boomers are the first generation to own their business, compared to three-quarters of younger business owners. One-quarter (25 percent) of owners under the age of 49 represent the second- or third-generation owners of a family business.
  • The biggest challenge business owners cited in being able to grow their business is the impact of taxes.

“Business ownership is alive and well in the U.S. economy, and new innovation is fueling entrepreneurship that knows no age limits,” said Keith Banks, president of U.S. Trust. “Many of these owners have substantial personal assets invested in their business, therefore business costs and tax pressures are never far from their mind as they can carry significant and immediate implications to the owner, their business and the entire family's financial security.”

Challenges to business growth

In response to the cumulative impact of increased federal, state and local taxes, business owners have taken a variety of actions including: reducing or limiting staff (26 percent); moving the business to a state with lower personal income tax rates (18 percent) or state with lower costs (15); and eliminating or reducing the provision of healthcare benefits (18 percent).

One in 10 business owners (11 percent) have sold or intend to sell the business, including 16 percent of those who have an annual household income greater than $1 million.

Few established business owners cited access to capital or credit as a top challenge to growing their business. Among business owners surveyed, 84 percent said that getting a bank loan and 88 percent said access to investment capital has not held them back from growing their business. Nearly two in five owners (19 percent) have increased their investment in the business or increased borrowing as a result of increased taxes.

Balancing act: Managing personal and business finances and responsibilities

Insights on Wealth and Worth found that people who own their own business have significantly higher annual household incomes than other high net worth households. Seventy-seven percent of non-retired business owners surveyed have an annual income greater than $200K and 26 percent earn $1 million or more, the majority of whom are young entrepreneurs under the age of 49. By comparison, 59 percent of non-retired, non-business owners have an annual income greater than $200K, and only 9 percent earn more than $1 million a year.

Business owners, especially baby boomers, are typically the wealthiest in their family of origin. As a result, they tend to take on responsibility for the well-being of extended family members, more so than non-business owners. U.S. Trust found that most business owners do not have a financial plan that accounts for this.

More than half (53 percent) of business owners provide, or have provided, substantial financial support (not a loan) to other adult members of their family, including their parents, grandparents, siblings, nieces and nephews.

  • Business owners are less likely than non-business owners to financially support adult children but are more likely to support other adult family members.
  • Fifty-seven percent of business owners do not have a financial plan that accounts for financial support needed by other adult family members.
  • Forty-four percent of business owners, compared to 31 percent of non-business owners, expect to financially support their parents or in-laws at some point.
  • Thirty-five percent of business owners, compared to 21 percent of non-business owners, indicate that they have forfeited income or advancement of their career in order to care for the special needs of children or parents.

“We’re seeing the next generation of entrepreneurs take a longer, multi-generational and purposeful approach to creating wealth, and business owners are generally more proactive about protecting their assets,” added Banks. “At the same time, despite all the advantages of owning a business, and maybe because of it, business owners face distinct challenges and may be most vulnerable to risks because so much of their income, assets and focus are tied to the business.”

When it comes to managing the needs of the business and personal finances and goals, many business owners pay greater attention to the business and put off important actions that can affect their overall wealth and financial security. This includes business succession planning, financial planning, estate planning, investment decision-making and wealth structuring.

  • Seven in 10 business owners (71 percent) agree that the needs of the business often take priority over their own personal needs and obligations, and approximately one-half (52 percent) focus more on the finances of the business than on their personal finances.
  • More than half (53 percent) of business owners say that minimizing the impact of taxes is an important factor in their investment decision-making; however, approximately four in 10 percent do not feel very well informed about the impact of tax increases on either their investment returns or income.
  • While three-quarters (78 percent) of business owners founded or co-founded their business, only 18 percent of baby boomers and 27 percent of business owners over the age of 68 intend to pass their business on to the next generation. Most plan to sell the business or close it when they are ready to leave, suggesting that a majority of next generation entrepreneurs are, or will, pursue business ownership on their own or with inherited family wealth.
  • At least one-half of young business owners, including 60 percent of millennials, have a formal succession plan to ensure the continuity of their business, compared to 34 percent of baby boomers and 44 percent of business owners over the age of 68.

Additional survey findings from the 2013 U.S. Trust Insights on Wealth and Worth can be found at www.ustrust.com/survey.

Survey Methodology
U.S. Trust 2013 Insights on Wealth and Worth is based on a nationwide survey of 711 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. Respondents were equally divided among those who have between $3 million and $5 million, $5 million and $10 million, and $10 million or more in investable assets. The survey was conducted online by the independent research firm Phoenix Marketing International in February and March of 2013. 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 percent confidence level.

U.S. Trust
U.S. Trust, Bank of America Private Wealth Management is a leading private wealth management organization providing vast resources and customized solutions to help meet clients' wealth structuring, investment management, banking and credit needs. Clients are served by teams of experienced advisors offering a range of financial services, including investment management, financial and succession planning, philanthropic and specialty asset management, family office services, custom credit solutions, financial administration and family trust stewardship.

U.S. Trust is part of the Global Wealth and Investment Management unit of Bank of America, N.A., which is a global leader in wealth management, private banking and retail brokerage. U.S. Trust employs more than 4,000 professionals and maintains 140 offices in 32 states.

As part of Bank of America, U.S. Trust can provide access to a broad range of banking solutions for individuals and businesses, and an extensive retail banking platform.

Bank of America
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