When you look at the richest families in the world, their fortunes all come down to one thing. They were built on a family business.
From the Rockefellers to the Fords, to the Waltons, all wealthy families got there through a successful business.
Most often, those family businesses grew very large and eventually became publicly-traded companies. But even then, the family often retains a significant share of the wealth.
For example, Sam Walton started Walmart as a single store in Arkansas in 1962, but it quickly turned into the world’s largest retailer. Sam left 50% of the business to his family, and his three children still own 45% of the shares in their own names. Their combined wealth is $245B.
However, while these big names may come to mind, small family-owned businesses drive the U.S. economy.
The great thing is, there’s never been a time in history when there are so many tools that make it easy to start a family business. And whether you start a business of your own, or acquire an already-profitable small business to jumpstart your success, building your own family fortune is well within your reach.
The Importance of Small Family-Owned Businesses:
When you think of a family-owned business, you may imagine the occasional small mom-and-pop store. But small family-owned businesses are much more common than big-name family fortunes.
In fact, there are 5.5 million family businesses in the United States alone, and these small family-run businesses drive the U.S. economy. Small family businesses account for 57% of America’s gross domestic product (GDP) and 63% of our workforce, as well as 73% of all new job creation.
Those numbers prove the significant role that family-owned businesses play in the economy and their potential for personal wealth creation.
Advantages of Owning a Family Business:
Small business owners make an average of $97K per year according to Comparably. But when you throw in the tax benefits and equity, there is a potential to earn 6-10 times as much personal income as wage earners. This gives small business owners a huge advantage in reaching Economic Independence faster and accelerating their long-term wealth-building.
Another key advantage is that family-owned businesses can employ family members, including children. This can make the family business a lifestyle rather than just a job. Wages paid to children can be deducted from business profits, and yet that money stays in the family tax-free (up to about $15k per child per year).
Another huge advantage to a family-owned business is that it gives women a much better opportunity to succeed in the business world over corporate jobs.
According to a study done by the Cornell SC Johnson College of Business, 25% of family-owned businesses are run by a female, compared to only 2.5% of female leadership in corporate Fortune 1000 CEO positions.
This demonstrates the greater opportunities for women in leadership positions in family-owned businesses.
Passing on the Family Business
Passing on the family business can be one of the best estate plans out there. It ensures that the business remains in the family and can continue to provide income and opportunities for generations to come. This is especially important for small businesses that may not have the same resources as larger corporations to pass on to heirs.
One of the surest ways to pass on the fortune is to involve the children in the day-to-day operations of the business as part of a succession plan. This teaches them about hard work, diligence, and entrepreneurship. That way, they do not become spoiled “trust-fund babies,” but learn to work productively within the family business.
Forbes recently ran an article about a family business called The Manthei Group. The article highlights the company’s humble origins, which began with a couple of German immigrant farmers who settled in Michigan and began farming. Today, the company has over 400 employees and over $100 million in annual sales.
They are now preparing to hand the day-to-day operations over to the fifth generation. The family has a mission to keep unified in business, and they work hard to grow so that they can create more jobs and give back to the community.
One of the keys to their success is that as new generations have different ideas and talents, they’ve opened up five different business units, including a heavy construction service company, a forest products business, mobile home and RV resorts, a real estate portfolio operation, and a licensing business that creates business opportunities for concrete producers globally.
Some of the business units they started from scratch. Others they acquired by buying out another successful local business where they knew they could add value.
Ways to Get Started
If you already own a business, the best way to turn it into a family fortune and a lasting legacy is to get your personal finances in order and start capturing your wealth in an efficient way. Then look for ways to involve your children in the business to teach them about entrepreneurship.
If you don’t have a business, you will want to explore your Investor DNA. This will not only help you decide the kind of business you could be most successful with, it will also help you see if starting one from scratch, investing in one, or buying an existing profitable business is the best approach.
Family-owned businesses are a significant contributor to the economy and provide opportunities for wealth creation and entrepreneurship.
Owning a family business has numerous advantages, including higher personal income, tax benefits, and opportunities to employ family members. In addition, there are greater opportunities for female leadership positions and numerous ways to instill family values, beliefs, and traditions in a way that provides value to the world.
And passing on the family business to future generations can be a smart estate planning strategy that ensures the business remains in the family for generations to come and provides for their financial needs without enabling them.