The current political environment, including the unprecedented election season, economic instability and inflation and the rise of artificial intelligence, are top of mind for private business owners when asked about their top three current challenges, according to the just released Brown Brothers Harriman Second Annual Private Business Owner Survey. The survey also reveals that succession planning is another area of concern and that many single-family offices aren’t meeting the expectations and needs of private business owners.
While the election and the status of the economy are valid concerns, AI making the list of top challenges is surprising, yet not unexpected given the rise in its prevalence in our day-to-day lives (look at the buzz over ChatGPT the past few years and the newly released Apple Intelligence). Nearly every private business owner (99% of those surveyed) reports using AI in some capacity in their business, from supply chain and inventory management to recruitment and retention. Despite embracing the technology, many are concerned about some of its implications and are split on how the federal government should regulate it—46% stated that AI must be more regulated.
Scott Clemons, partner and chief investment strategist at BBH, said, “Economic cycles come and go, interest rates rise and fall, and presidential elections happen every four years. Artificial intelligence, on the other hand, is a paradigm shift, and the pace of progress in this area poses opportunities, challenges, and risks to businesses of all sizes.”
Planning for the Future
Family businesses also face another unique challenge—succession planning. Most private business owners surveyed (91%) say that it’s important for their business to remain in the family for the next generation, yet 29% report struggling to pick a successor. And, while an impressive 99% said they’ve taken steps to prepare the next generation to take over, 74% also stated that roles for the next generation are either not well-defined or haven’t fully been communicated.
A common concern is the readiness of a potential family member to become the successor. The study posits that “the departing leader must identify whether their role is fillable as presently designed. Responsibilities often require division and delegation across several roles (some new) rather than simply handing them down to a successor.” Engaging with the next generation early on to learn their interests can also help determine if they’ll be the right fit. The cost of not focusing on stewardship and how to transition (whether by selling or family succession) is significant, both financially and personally.
Communication is crucial for private business owners’ succession planning and estate planning. While all the private business owners said they have an estate plan, 97% reported that they either haven’t fully shared the plan with family or just shared a part. In succession planning and estate planning, discomfort around emotions and damaging family relationships are major concerns. “When starting the conversation about wealth and estate planning with the next generation, focus first on what you care most about – not the dollars and cents, but your family’s values and what motivates you,” suggested Adrienne Penta, Principal and Executive Director of the BBH Center for Women & Wealth. That common ground will serve as a springboard to more open discussions.
SFOs Falling Short
Lastly, managing a family’s wealth and investments is the key to ensuring it lasts for generations. On that front, one-third of private business owners reported using an SFO to manage their investable assets (55% said they engage one or more wealth management firms). Still, nearly half reported that investment and manager selection aren’t meeting their needs or expectations. Tax return preparation, philanthropy administration, and estate planning were also among the SFO services that were reported as not being up to par.
Looking outside of the SFO to fill the gaps is especially important now, with the looming gift and estate tax exemption sunset. Private business owners are aware of the opportunity, with 74% planning to engage in additional estate planning to take advantage of the higher exemptions (16% plan to do nothing, citing their belief that higher exemptions won’t be reduced).
