About Money Business

Investment and Insurance Products are: Not Insured by the FDIC or Any Federal Government Agency Not a Deposit or Other Obligation of, or Guaranteed by, the Bank or Any Bank Affiliate Subject to Investment Risks, Including Possible Loss of the Principal Amount Invested

Transcript:

[Emily] And so, I think the money secrets kind of come up in the sense that some business owners just don’t think it’s anyone else’s business, right? Like, I don’t need to share with you. I am the CEO.

[Michael] I love that.

[Emily] I am the owner.

[Michael] Hi, humans. Welcome back to the About Money podcast. I’m Michael Liersch, behavioral psychologist and Head of Advice and Planning at Wells Fargo.

[Emily] And I’m Emily Irwin, Head of the Advice Center at Wells Fargo, where we provide research-based advice on topics ranging from retirement to business planning and even longevity.

[Michael] On this season of the About Money podcast we’re breaking down trends we found in the Wells Fargo Money study and discussing topics from social media millionaires to why people lie and keep secrets about their money.

[Emily] So, let’s get into it.

[Michael] So, Emily, here we are, business owners, About Money podcast. We’ve got data and information on business owners also from the Wells Fargo Money Study. Thousands of Americans how they think and feel about money. Are you excited about this conversation?

[Emily] I’m super excited. I don’t know if you know this.

[Michael] I don’t know what I’m not going to know.

[Emily] I’m the daughter of a business owner. Third generation.

[Michael] Did I know this? I think I might have known it.

[Emily] Third Generation. And so, I’m way into this, Michael.

[Michael] Third generation. So what does that mean? What can you tell us the lineage here.

[Emily] My grandfather and grandmother founded it. Okay. My father purchased the business from them after running it alongside them for 40 years.

[Michael] Okay.

[Emily] And one of my three brothers is now in business with my father.

[Michael] Oh my gosh. Hi, brother.

[Emily] Yeah.

[Michael] Hey. That’s amazing. Can I ask what type of business it is?

[Emily] It is an insurance business.

[Michael] Okay, well, now now you’re in financial services, like amazing. Okay, so, small businesses runs in your family. I can’t say it runs in mine. We’re all kind of corporate employees and my family…

[Emily] No judgment.

[Michael] I’m good with that. I’m good with that. So, you might have a lot more to say about this on a personal level than I do, but certainly we work with a lot of customers and clients who own businesses of all sizes.  As of 2023, 62 million Americans are employed by a small business, Emily. 62 million.

[Emily] It’s crazy, Michael. Like, we think that the Fortune 500 companies rule the world. But let me tell you, these small businesses are making an impact everywhere with their employees and their communities. And actually, they make up almost 99% of all of the US businesses.

[Michael] So then are we even allowed to call… since small business is obviously big business. And employing 40, almost 46% of all US employees, should we even be calling it small business?

[Emily] Well, I don’t think they would consider themselves small.

[Michael] I mean, did your family?

[Emily] No.

[Michael] Okay.

[Emily] No.

[Michael] So, let’s we’ll table that one. That’s not for the podcast.

[Emily] I was going to say that’s a theoretical question. However, here’s what I’ll say about this, Michael.

[Michael] Okay.

[Emily] This is what’s interesting. For the business owner, their business is never small.

[Michael] No.

[Emily] Their business is everything.

[Michael] Oh my gosh.  I can imagine.

[Emily] So, we’ll just pivot off of that.

[Michael] Okay that’s great because the business is the business and again, meaningful. There’s a lot of intention a lot of work effort. You know yours is three generation business, that your brother is running now. I mean, really, really exciting stuff. And since my family didn’t even have a business, I can’t even put myself in that category. So, you’re right. It just stands on its own as a pretty amazing accomplishment for a business owner to have a business, to run that business. So, let’s hop into some of the data then that we heard from the Wells Fargo Money Study. Because running a business is not all what, what do they call it? Roses and butterflies. Okay.

[Emily] No, this is not for the faint of heart.

[Michael] Did you just say butterflies along with me?

[Emily] I did, I did.

[Michael] That was crazy.

[Emily] We’ve been at this for a while. Okay, here’s what I’m going to tell you, though. Yeah, it is not for the faint of heart.

[Michael] Okay. Alright.

[Emily] You live, you breathe it. And in fact, 68% of respondents in the Wells Fargo Money Study told us that they feel the pressure to grow their business day in and day out.

[Michael] And what does that when you think of pressure to grow your business by growing as at the number of employees so that you can be more, you know, helpful to the community, is that selling more product or services so your revenue increases? Like what do you think that is?

[Emily] I think it’s everything.

[Michael] Okay.

[Emily] I think it’s the how do I grow my business in a way that I can do more for my customers? How do I grow my business in a way that I can make a greater impact on the community, whether it’s through giving back or whether it’s through employment of more individuals who work there.

[Michael] Okay.

[Emily] I also think it’s how do I grow my business so I can, with all my sweat equity, really like enjoy the fruits of my labor, how can it benefit my family? And then finally, how can I grow my business so if I want it to be a legacy, it’ll be standing on its own and being able to do that.

[Michael] So like, your family.

[Emily] For my family, and it could be a legacy where you’re either running it like my family.

[Michael] Yeah.

[Emily] Or a legacy where you’re selling it and maybe you’re setting up your legacy in a financial way. So there’s no concern for your spouse, children, grandchildren.

[Michael] So it’s interesting you highlight all of those because we do have a lot of services at Wells Fargo.

[Emily] We do.

[Michael] And I can’t, I’d be remiss not to, you know, leave that out. You know, that help business owners of all type… types. As we kind of alluded to before, we even have a business owner advisory group that works in the Advice Center that you head up.  And so when you think about this idea of this expectation business owners are putting on themselves and feeling that pressure to grow, 68%, that feels though like an outsized expectation.

[Emily] I don’t think so.

[Michael] Okay.

[Emily] You know, I’ve met with hundreds of business owners, maybe thousands over the years of practicing and business owners have. And one thing, they’re all unique, but they have one universal characteristic. Their business really is everything to them.

[Michael] Okay.

[Emily] Very often it’s a, if you have no children, it’s your only child. If you have, in my case, five kids in the family, it’s your sixth child.

[Michael] Okay.

[Emily] It is part of their DNA. And so, they’ve given up everything. They’ve given up the stability of a W-2 income.

[Michael] Okay.

[Emily] To throw themselves into the risk and upside of growing something that is theirs. And I think that person who’s wired that way from every business owner I’ve met with, they always want to keep growing it.

[Michael] That true entrepreneurial…

[Emily] True entrepreneurial spirit. Yeah.

[Michael] Okay. So, then let’s talk about the other side of that, which is 59% of business owners say owning a business puts pressure on family life. When you think about then that entrepreneurial spirit, you know, the expectation to grow that business. And that’s where I was kind of coming from. That feels like a lot to be accountable for and to have the whole family look at you for. I’m thinking of your grandmother and your grandfather. How or what advice would you provide or do you think we should provide to our listeners who are running a business, have that expectation, also feel this pressure on their family life? Is there any type of balance that people talk about work-life balance, work-life integration? Do you think they should kind of throw that out the window, or how should they bring that into their business life?

[Emily] Yeah, I think that it’s almost impossible to think there’s ever going to be a balance, a true balance, but I think that’s true whether you’re a business owner or not, to be quite frank. And the most important thing is for you to be able to define it for yourself. What are your terms that are your non-negotiables. So for example, I’ve met with business owners and one shared with me once that no matter what is happening, whether he’s traveling to Asia to meet with a manufacturer that, you know, makes his products, whether he’s going to be, you know, meeting with a bank to get another line of credit, he will never miss his daughter’s swim meets. And he said, even if I’m traveling, I will bring it up on the iPad, I will make sure I’m watching it in real time. If it’s a weird time zone, I’ll get it sent to me. Like I will not miss those. And if I’m home, that is my thing. I will commit to that. And that’s his thing.

[Emily] I don’t think he might make all of, you know, every other thing, but that’s the thing that for their family feels good. And so as long as at that time that’s fine. The other thing, though, that I think we’re missing maybe, is the pressure on family life. It’s not just the hey, how do I balance the day to day?

[Emily] How do I bring family into the business? That’s a big question. What type of experiences does a family member need before they enter into the business? Have I set those clearly? And so this is where someone like our team at Wells Fargo, the business owner advisory team, can help define what is the criteria for entry into the business and what are the different steps that you might want to make sure that you actually memorialize and make sure that you have the education, the experience.  Do you rotate someone around departments?

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[Emily] I think actually analyzing the different strategies is really important for business owners. Very often they’re kind of, execution-oriented mindsets, right? So we want to think about what does it look like, an intra family transition. What does that mean for you as the owner from a cash flow perspective? What does it mean?

[Michael] Well, this gets into another aspect of it too, which is, you know, 50% of business owners say they, they mix, personal finances with their business finances. And so part of that I’m thinking of in what you’re describing is this idea that what if you have multiple family members who want the business transition to them and they want to run it and they want to be the decision makers?  Or what if you have no one, but the family still wants the business to be in the family? Or what if you have people with different skill sets and maybe they should be making different amounts of money, but they all want to make the same amount. Like how do you deal with all this stuff?

[Emily] Yeah. Well, and again, there’s no universal blueprint. Every single business owner deals with this differently and it’s what works for them. Yeah, we might explore things like do we want this run more like an arm’s length transaction? Yeah. Whether you’re a sales rep or whether you’re the CEO, you’re being paid what you would get paid as a third party if you were not employed.  And that’s what it is.

[Michael] So you do the diligence, to find out what the competitive compensation is.

[Emily] So we can approach it that way. We can also approach it.

[Michael] That sounds fair, by the way.

[Emily] It does sound fair. However, it can also be sometimes a little tricky. Is the CEO the CEO because she was the first born in the family, and so she just rose to the ranks faster. And you know, the last kid is the sales rep? So there’s a little bit with a family business…

[Michael] That could feel unfair.

[Emily] Right. It could also feel unfair. So, we also want to think about it through the aspect of has there been communication from the business owner to the key stakeholders who are the family members?

[Michael] Got it.

[Emily] Typically, Michael, we actually say these conversations should start, you know, the first one, five years in advance of any sort of potentially big change.

[Michael] Okay that sounds right. And that sounds like it could diminish some of this pressure and stress too, because that communication unfolds and then so does the plan.

[Emily] Correct.

[Michael] And then this idea of mixing personal finances with business finances, it might be revealed a bit more, and then everyone can start creating a bit more of a separation, which is necessary, and you and I know this is, as wealth planning professionals.

[Emily] Correct.

[Michael] There needs to be a bit of a separation so you can make those key decisions of how the business should either transition or be monetized in a way that’s really going to achieve your wealth intentions.

[Michael] Okay. So that makes sense. There’s one that’s really interesting here to me, actually, it was a little unexpected. It caught me off guard. So, 66% of business owners from the Wells Fargo Money Study said they keep or have kept money secrets or a money secret, rather. And more than 50% said they keep secrets, money secrets from people at work.

[Michael] Maybe that one’s a little less surprising, because we didn’t really define what a money secret was. What… let’s dig into that. What do we think money secrets mean in this case?

[Emily] You know, money secrets, small businesses are really their own ecosystem.

[Michael] Okay. Alright.

[Emily] And, there isn’t necessarily a defined playbook, if you will, for every small business. Now, there are certainly some. And we have lots of clients who have very formalized processes, and we work with them to be able to get those on paper so there’s a clear understanding and you kind of stand up more of a HR type feeling within the organization, the governance of the business.

[Michael] Okay. The processes, procedures have it all outlined in terms of how it’s going to go down? Correct?

[Emily] Correct. We’ve also worked with businesses, as clients, business owners. It’s a little bit more ad hoc. Right. And so, I think the money secrets kind of come up in the sense that some business owners just don’t think it’s anyone else’s business. Right? Like I don’t need to share with you. I am the CEO. I am the owner.

[Michael] I love that. So it actually reminds me of a client situation I was in where the adult children wanted to know everything about the business.

[Emily] Forget it.

[Michael] And so the business owner in this case, well, they came to us for advice and I said, what do you want to answer all of their questions? And it was like your grandmother and grandfather, right? The couple said, “no, not really.” And I said, but do you want to know what their questions are? And they said, yes, absolutely. So, I said, how about we do this? Why don’t we let them know that we’re going to have a family meeting, and you’re not going to answer any of their questions, but you’d love to know what they were and then you decide what the next steps were. So, we met with the family’s three children, and literally in an hour, Emily, outlined every single question, and it wasn’t actually about who was going to get what and who is going to get to run this. It was all about the intentions of the business. What mom and dad wanted for the business, what the expectations were on them to support that intention, what they needed to go to school for, you know, did they have a choice in their career because, you know, they were in their late 20s and making those decisions, were their spouses or partners allowed to be involved?  And so, it became very revealing that a lot of those questions remained unanswered. What do you think about that methodology?

[Emily] I love that methodology because I also think it’s surprising.

[Michael] Yeah.

[Emily] For business owners, I think business owners, again, because they have this strong sense of pride very often it’s like, well, what’s the question? Is it going to be something about what am I getting in when or is it going to actually be about my baby, the business, and how can I align these intentions?  And I’m sure your client, I don’t want to be presumptuous, thought to themselves like, well, this is these are better questions than maybe we thought they might be.

[Michael] They were, they were.

[Emily] This is a pleasant surprise.

[Michael] Well, they realized they were unanswered. And to your point on governance, undocumented, and they were approaching, you know, they’re probably ten years out. I would say at that point, you know, this was a little bit of time ago, but ten years out, now they’re more proximal to your point. They’re closer to that. They’re closer to the five-year point now.

[Emily] And it really then puts, I think, the onus on the business owners to be able to say, are we ready to share this information and really challenges them to say, have I considered what I want my answers to be? Right?

[Michael] Yes, I love it and my options even within that framework.

[Emily] And it’s really hard for a business owner to retire. I mean, what does retirement look like after you’ve built a business for decades?

[Michael] Maybe it doesn’t happen.

[Emily] It doesn’t have to be, right. It may not happen. And so this idea of a light switch turning off in one day, you retire. For some business owners, yes. For the vast majority that I’ve met with, they’re still going to show up and putter around.

[Michael] Sure, a phased approach.

[Emily] Or ask the questions over the Thanksgiving table.

[Michael] 100%. And the other part that is interesting about this is, two thirds of business owners said this was their only job that they have.

[Emily] Yes.

[Michael] And so, when I think about that, you know, how would you know what your options are if this has been your only job, right. You haven’t explored other, you know, areas and you know, you’re not necessarily professional in, you know, the management and all the technical details of the business are getting that level of advice, having people maybe external to you, your professional advisors or even your family ask these questions opens the door to maybe a consideration set that you haven’t had, you know, and to your point on the growing the business piece, maybe it is time to monetize a business.  Or maybe there are levers you can pull to actually grow the business more quickly. Or how long do you want it to grow for before you decide to exit or hand the baton to someone else? So, I love this. A question for you, which is, what level of transparent, what level of transparency,

[Michael] so, think of the right amount of information at the right time, could you give our listeners who are running a business, and they are thinking of having these conversations because obviously the secrets are a part of it. And this idea of all this pressure and, you know, there’s a lot held close to the vest. What would be that phased approach to the transparency?

[Emily] Well, and I’m incredibly sensitive to this because the transparency also can affect things for many business owners. They think about we don’t want to affect our banking relationship. We don’t want to affect our relationship with obtaining lines of credit or product or customers, right? Get one whiff of I’m retiring or transitioning and will I lose this contract, for example?  So it’s an incredibly sensitive topic. I think that the transition is you start with working with the team.

[Michael] Or in-fighting in the family even.

[Emily] In-fighting in the family.

[Michael] Who’s going to get the role next?

[Emily] Correct. I mean, that can be a red flag that can affect your business right now. So I think starting first actually with a smaller group of professionals, a financial advisor, or maybe someone from a professional association, if you’re in that type of industry, probably your CPA and then maybe an attorney as well to get involved and say, here’s, here’s long term what I want the plan to look like, these key stakeholders are often going to have good advice of how are we going to bring everyone together. I think the next phase is determined, is this going to be something you want to be a longevity asset or a legacy asset that operates, or that simply funds your family or your other, you know, your goals, such as a charity, for example. So that’s kind of phase two. And if we’re… if depending on your answer, phase three becomes communication of the plan.  And so if your family is going to get involved, we’re really talking about memorializing what does the path look like if you want to be an employee, if you want to rise to the level of leadership, or if you simply have the option potentially to be someone who is invested from a, ownership standpoint, but not in an employment standpoint.  What are the rules of the road? Or you communicate, I think at some point, a few years out. So there’s not any surprises that this is something that’s not going to be operating. That’s not actually your goal for this particular asset. And so that’s equally important, especially if the kids are already employed, one or more in the business itself.

[Michael] Okay.  And so when we think about what you’re talking about that phased approach of, you know, having maybe a, closer set of advisors to help reveal the plan. And ultimately then by revealing the plan, I mean, lay out the options and then move into communication, right amount of information at the right time. What I’m realizing when I’m reading this now.

What was that TV show? Succession?

[Emily] Oh, yes.

[Michael] Okay. That everyone was talking about, you know, that’s like an aggregation of a lot of different families, and you know, writers always write from experience and things like that. So I think people are trying to avoid that.

[Emily] Yes.

[Michael] Right. And lean in more to, you know, a real legacy and outcome, where that, that business because it goes back to the beginning of our conversation that it’s really held in esteem in the community, with the family, you know, whatever it’s providing, you know, either a memory.  Right, financially. And so I think your advice is extremely helpful. And the only thing I’d add to it is really getting the open questions on the table. Yes, it’s really critical. And laying those questions out and asking about your options, whether your business is early stage, mid-stage, or late stage, it’s just going to really give you that certainty that maybe alleviate some of those data points that we see.

[Emily] I totally agree with you, and Michael, you know, business owners, I love them, I really do. I have so much admiration.

[Michael] You have them in your family.

[Emily] I have them in my family.  It’s in my DNA.

[Michael] Emily loves you, brother.

[Emily] But I mean, they take on the risk and you, I really want to wrap my arms around them when I meet with them and say, here are your options and how can we help get you to where you want to go. Understanding all the different levers you can pull in all different paths because there is so much blood, sweat, and tears in each of these entities.

[Michael] Yep. And last thing on that topic, another client I’m thinking about in the… they did co-mingle their personal balance sheet and their professional one a little too closely. Meaning they invested in their business, so much so that they didn’t invest in like a 529 for their two children, or invest in purchasing a home. And they live in the San Francisco area.  Right. So then all those things, they monetized the business, but then didn’t really think about their personal balance sheet, if that makes sense, Emily.

[Emily] It does.

[Michael] So they underinvested in their personal balance sheet over invested in their business balance sheet. And the pay off was mixed. So I think that’s just to your point on taking on all that risk, ensuring that there’s a bit of balance there and looking at both sides.

[Michael] Would you agree with that?

[Emily] I totally agree, and look, in my heart of hearts, I want to believe every business owner is going to end up like a Fortune 500 company, right? If that’s their goal, great. I want it for them desperately. But to your point, I think there is a sense of you do want to make sure that you have your oxygen mask on first.

[Michael] Yes.

[Emily] And this is where it gets to that goal setting. If everything went sideways, what do you want to absolutely make sure you’ve taken care of? And it’s for this couple. It sounded like maybe it was housing, education, or maybe things that they just kind of banked on, as opposed to saying, no matter what, we have to do this and the capital reinvestment, we’re going to make, well, the delta will be a little bit smaller, right?  But we’re going to do it because we know we’re already funding these things. It just can feel weird for a business owner because it feels like, well, we’re not presuming success. But when you see it on paper, I think this is where working with that team is so important, because when you see the numbers, then you can really understand, okay, this is the risk I’m assuming, or this is the risk that I’m not willing to assume.

[Michael] And in this case, I think the business owner thought they had much more control over the business outcomes than they did about some of those other outcomes I was talking about and didn’t anticipate inflation of housing in the Bay Area, didn’t anticipate the inflation of the cost of education for their children and things like that. So, you know, a lot changes.

So having that balance is important. But thank you so much, Emily, and thank you to our listeners for listening to this episode.

[Emily] Thanks for listening to this episode of the About Money podcast. Share this episode and follow our channels on Spotify and YouTube to stay up to date on the latest money conversations.

[Michael] Again, I’m Michael Liersch.

[Emily] And I’m Emily Irwin.

[Michael] Talk soon, humans.

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