The current political environment, including an unprecedented election season, economic volatility 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 newly released. Brown Brothers Harriman Second Annual Survey of Business Owners. The survey also reveals that succession planning is another area of concern and that many single family offices are not meeting the expectations and needs of private business owners.
While elections and the state of the economy are valid concerns, AI making the list of top challenges is surprising but not unexpected given its increasing pervasiveness in our daily lives (see the buzz over ChatGPT the past few years and Apple Intelligence newly released). Almost every private business owner (99% of respondents) reports using artificial intelligence in some capacity in their business, from supply chain and inventory management to recruiting and retention. Despite embracing the technology, many are concerned about some of its implications and are divided on how the federal government should regulate it — 46% said AI should 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 presents opportunities, challenges and risks for businesses of all sizes.”
Planning for the Future
Family businesses also face another unique challenge – succession planning. The majority of private business owners surveyed (91%) say it is important that their business remains in the family for the next generation, however 29% report having difficulty choosing a successor. And while an impressive 99% said they have 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 not fully communicated.
A common concern is the readiness of a potential family member to become an offspring. The study posits that “the outgoing leader must identify whether their role is fulfilling as currently designed. Responsibilities often require division and delegation to several (some new) roles rather than simply handing them off to a successor. Engaging with the next generation early on to learn their interests can also help determine whether they will be a good fit. The cost of not focusing on custody and the manner of transition (whether by sale or family succession) is significant, both financially and personally.
Communication is essential to succession planning and estate planning for private business owners. While all private business owners said they had an estate plan, 97% reported that they either did not fully share the plan with family or only shared a portion. In succession planning and estate planning, concern about emotions and damage to family relationships are major concerns. “When you start the conversation about wealth and estate planning with the next generation, focus first on what you care about most — not dollars and cents, but your family's values and what motivates you,” suggested Adrienne Penta. Chief Executive Officer of the BBH Center for Women and Wealth. This common ground will serve as a springboard for more open discussions.
SFOs that fall short
Finally, managing a family's wealth and investments is key to ensuring it lasts for generations. On this front, one-third of private business owners reported using an SFO to manage their investable assets (55% said they engaged one or more wealth management firms). However, nearly half reported that investment and selection managers are not meeting their needs or expectations. Tax return preparation, philanthropy administration and estate planning were also among SFOs' services that were reported to be substandard.
Looking outside the SFO to fill the gaps is particularly important now, with the impending sunset and wealth tax exemption. Private business owners are aware of the possibility, with 74% planning to engage in additional estate planning to take advantage of higher exemptions (16% plan to do nothing, citing their belief that higher exemptions do not will be reduced).