New York, NY, May 15, 2023 – Today, Brown Brothers Harriman & Co. (BBH) released the results of its inaugural Private Business Owner Survey which found that despite challenging economic conditions, from rising interest rates and inflation to geopolitical tensions, and the labor market, business owners are confident in the future of their organizations.
The research found that 71% of business owners believe their business is mostly or fully recession-proof. In fact, 69% say they’ve increased their efforts to grow the business through investment as a result of recent economic uncertainty. However, 76% agree that every time they have to navigate through economic uncertainty, they lean more towards selling their business.
“Private businesses are, in many ways, the backbone of the US economy,” said Val Carlotti, BBH Partner. “They have the opportunity to be truly long term in their planning and our results highlight that even in challenging economic conditions and uncertainty, private business owners have a steady hand and lean into opportunities to reinvest in their companies.”
Family Dynamics at Play
The research found that while complicated dynamics play a significant role in family-owned businesses, 85% of owners who identify their company as family-owned feel it’s very or extremely important that their business remains in the family for at least another generation. Therefore, it’s no surprise that 100% of business owners who feel it is important their business remain in the family report having taken steps to prepare the next generation to take over. However, 75% of these business owners say the family members’ roles are either not well defined or not fully communicated.
“There are many reasons why family business owners find themselves wishing they were further along on succession planning,” said Kathryn George, BBH Partner. “Sometimes it’s not knowing how to choose leaders. Other times it’s struggling to let the next generation take risks. The generation in charge can also have a hard time letting go of doing what they love. Helping families come to terms with the real issues standing in the way of progress is a first step in the work we do to ensure the multi-generational success of our clients’ businesses and families.”
With the sensitive and intertwined nature of these issues, it’s not surprising that conflict is common in connection with succession. In fact, a vast majority of private, family-owned businesses, 84%, report that a business decision or discussion has led to severe disagreements or resentment within their family. And 43% say it’s a challenge to choose a successor knowing it will cause conflict within the family. Private business owners point to a variety of reasons that could make them hesitant to discuss business with close relatives. While the most common concern is that family members make decisions based on personal benefit rather than what’s best for the business (41%), 36% of respondents indicated these discussions tend to get heated or emotional, or that they’ve had previous bad experiences trying to have these discussions with family (35%).
Ushering in the Next Generation
Despite the tension, 100% of business owners who feel it is important their business remain in the family have taken some steps to prepare the next generation to take over. One in five owners, however, admit they don’t have a clear succession plan. The survey found that many private business owners lack confidence in the next generation of leadership, with 75% citing leadership-related concerns as a reason they might consider selling some or all of the business. This includes 36% who say there is a lack of existing strong leaders to take over and 26% who say their children aren’t interested in running the business.
Not all of the respondents intend to keep their business in the family, with just 37% anticipating a family member will take over leadership of the business when they’re ready to step away. One in 5 (20%) anticipate having a longtime employee take over, and 16% anticipate hiring an established outside to take over leadership when they are ready to step way.
“It’s critical that business owners are proactive in cultivating both family and non-family member leaders. Existing leaders need to provide members of the next generations with opportunities to learn about the business both early and often,” said Benjamin Persofsky, Executive Director of the BBH Center for Family Business. “Communication is key, including setting clear expectations and prerequisites so that family members understand what is required to earn an opportunity to work in, or to eventually lead the business in some way.”
While nearly all private business owners (98%) report they have an estate plan, many (94%) have not communicated those plans to their families. Nearly half (49%) say they want to be sure the plan is right before sharing it, while 36% feel unprepared to answer questions likely to come up in discussions. Nearly as many say no time feels like the right time to discuss this (30%) or are unsure how to initiate such a conversation (29%). While another 23% haven’t done so because they don’t want to demotivate their family.
“Values are your north star as you think about how and when to distribute your wealth; they are also an excellent starting place in talking with next-generation family members about wealth and estate planning,” said Adrienne Penta, Executive Director of the BBH Center for Women & Wealth. “While these conversations can be intimidating, preparation is your best ally. Creating a robust communication plan helps families feel more comfortable wading into these discussions, and ultimately will make the family and the business more successful.”
Succession, estate planning, and other delicate matters aside, family-owned businesses pull together when times get tough. Three in 5 owners of private, family-owned businesses (60%) say when there’s economic uncertainty that presents challenges for their business, the family becomes closer as everyone gets more involved.
Conducted in partnership with Wakefield Research, the BBH Private Business Owner Survey was conducted among 400 US Private Business Owners from enterprises valued over $10 million, excluding institutionally owned businesses or those owned by a fund. Read the full report here: bbh.com/2023businessownersurvey
About BBH Private Banking
BBH Private Banking’s singular focus is helping our clients achieve their vision of success for their families, wealth, and businesses. We seek to build long-term relationships with each client on a foundation of trust, leveraging our perspective and experience as an investor, advisor and capital provider for over 200 years to help clients accomplish their goals. We serve individuals, families, businesses, and institutions, offering Multi-Family Office, Corporate Advisory & Banking, Private Equity and Endowment & Foundation Management solutions.
About Brown Brothers Harriman
BBH is a privately held financial institution that has been a thought leader and solutions provider for over 200 years. The firm serves individuals, families, businesses, and institutions in its three business lines: Private Banking, Investment Management, and Investor Services. BBH’s culture of accountability fosters deep and lasting relationships built on commitment, adaptability and trust. The company is independent, selective, and specialized by design.
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