Why We Need Family-Owned Businesses in America

Jun 4, 2024

There is a belief that people do not find books, but books find people with intent to provide education, guidance, and teach lessons.  One of the books that had an early influence on me was The Giving Tree by Shel Silverstein (https://youtu.be/hDYm5OmVb4U?si=M3xWL1Lqf0pj1OZe). The book tells the story of a tree’s role in a boy’s life giving of itself freely to help him achieve goals and be happy.  I thank my mother for introducing the book to me in an effort to enhance my perspective.  I am a better person because of it.

I believe it is important to say thank you individually and societally to those who contribute to our well-being from family to teachers to community mentors.  One group that does not get the gratitude and appreciation it deserves is the entrepreneurs who create, manage, and grow privately held companies and family businesses. These are risk acceptant individuals with vision and execution ability who make our communities better places to live and work.

Why should we be thankful for this group?  Let me provide five reasons.

  1. The group creates employment opportunities for others. Companies with less than 500 employees account for 46% of all jobs in the United States (https://www.pewresearch.org/short-reads/2024/04/22/a-look-at-small-businesses-in-the-us/). In addition, small businesses, companies with less than 249 employees have contributed positions for 55% of the jobs created over the last 10 years (https://www.bls.gov/opub/ted/2024/small-businesses-contributed-55-percent-of-the-total-net-job-creation-from-2013-to-2023.htm).
  2. Small businesses create a local ecosystem where dollars are spent on employees, rent, services, equipment, inventory, and supplies. A study by American Express found that $0.68 of every dollar spent at a small business in the U.S. stays in the local community and that every dollar spent at small businesses creates an additional $0.48 in local business activity as a result of employees and local businesses purchasing local goods and services. (https://www.americanexpress.com/en-us/newsroom/articles/amex-for-business/american-express-reveals-13th-annual-small-business-saturday.html).
  3. Small businesses are good for local commercial & residential real estate values (https://www.businessnewsdaily.com/1583-small-business-real-estate.html).
  4. Small businesses create tax revenue to fund government social safety net services from Social Security and Medicare at a federal level to schools and road infrastructure at a local level.
  5. Small businesses invest in their communities. This investment ranges from financial donations to the creation of public spaces and infrastructure.  An example relevant to this time of year is the support of Little League by the Lee Johnson Auto Family in Kirkland, Washington  (https://www.kirklandreporter.com/news/lee-johnson-auto-family-steps-up-to-the-plate-for-kirkland-baseball-commission/).  A donation that impacts children of IBA staff based in Bellevue.  Many other worthy examples could be provided.

IBA has been a long time advocate for the entrepreneurial community.  We support organizations like SCORE (https://www.score.org/seattle) and DECA (https://wadeca.org/) in their efforts to support the entrepreneurs of today and create the business owners of tomorrow.  A good national organization that advocates for entrepreneurs is the Job Creators Network.  I recently appeared on their Podcast, Main Street Matters (https://ibainc.com/videos/learning-more-about-the-iba-with-greg-kovsky/).

If you are an entrepreneur exploring a potential business sale, IBA would welcome the opportunity to learn about your business, and exit strategy objectives, and provide an overview of our client services.  All conversations with IBA are held in strict confidence and 100% of our fees are payable upon project completion.  If you are thinking about becoming an entrepreneur, we would welcome the opportunity to share the advantages of buying an established business or franchise versus creating a business from whole cloth.

I also think we as a society need to recognize the risk taken by job creators, and small business entrepreneurs, and create incentives to encourage their vision, effort, execution, and investment without penalizing them with high taxes on the sale of the business assets they have created as their life work which made all of our lives better when they decide it is time to ride off into the sunset and retire.  Current government trends are to go after business owners aggressively with high transaction taxes when they sell their businesses.  The state of Washington, without input from the voters, imposed a 7% capital gains tax on top of the federal capital gains tax in 2023 on people selling their businesses above a small business threshold.  (https://dor.wa.gov/about/news-releases/2023/capital-gains-excise-tax-ruled-constitutional).  It is anticipated that a vote to repeal this entrepreneurship stifling tax will be on the ballot in Washington in November (https://ballotpedia.org/Washington_Initiative_2109,_Repeal_Capital_Gains_Tax_Initiative_(2024)).  One has to wonder if Microsoft, Costco, Starbucks, and Amazon would have corporate headquarters in Washington today if that tax had been in place when they were founded.  Federally, the Biden Administration is thinking about increasing the capital gains tax by 19.6% to 39.6% from 20% to facilitate paying for their fiscal year 2025 budget (https://www.kiplinger.com/taxes/biden-calls-for-doubling-capital-gains-tax-rate). How this aggressive exit tax on entrepreneurs when they sell their businesses can be a good thing is a mystery to me.  It should not be forgotten that 50% of new business startups fail in their first five years (https://www.investopedia.com/articles/personal-finance/040915/how-many-startups-fail-and-why.asp).  Entrepreneurs are not looking to be reimbursed for their lost investment when their ideas do not take flight. They recognize risk is necessary to obtain reward. They also should not be forced to provide a pound of flesh to the government if they succeed at time of sale.

A second book that resonated with me at a young age was The Little Red Hen (https://youtu.be/GLzna0Hrsco?si=JcwgmQVB1P0BN_US). This classic story conveys the benefits of hard work.  America is unique in the world because anyone who has an idea, works hard, and builds a business that provides a valued service or product can climb a limitless ladder of personal fulfillment and financial prosperity.  The people of the United States have shared millions of entrepreneurial success stories across our kitchen tables for generations.  It is my hope that will continue far into the future with loud voices and community admiration for their contribution to our lives.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, legal, and accounting communities on subjects relevant to the purchase & sale of privately held companies and family-owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.