To better understand what’s driving of one of the fastest-growing segments of the small business sector, Bank of America recently surveyed more than 300 Hispanic entrepreneurs across the nation to identify their motivations, aspirations, and concerns, including many based right here in New York City.
Despite experiencing one of the tightest labor markets in half a century and unemployment in the New York City area sitting at 4.9% as of June 2019, Ramon Eduardo, owner of the Bronx bakery company Il Forno Distributing, has seen remarkable growth and is looking to expand. Il Forno Distributing is a fixture of the Bronx community which has grown by almost 10% since 2010. Beginning with only 2 customers, Ramon has grown his business to serve over 300 customers throughout the tri-state area and has expanded his staff to 37 employees. This local success story exemplifies trends observed throughout the nation.
According to Bank of America’s third annual Hispanic Small Business Owner Spotlight, 79% of Hispanic entrepreneurs plan to grow their business over the next five years, surpassing their non-Hispanic peers by 24 percentage points. Additionally, this year 74% expect their revenue to increase (17 percentage points higher than non-Hispanics) and 51% plan to hire new employees (25 percentage points higher than non-Hispanics).
Reflecting on their own success, more than one-third of Hispanic entrepreneurs say their business has grown beyond expectation. In addition, many Hispanic business owners are looking to the future and envision the long-term growth of their business to be a multi-generational asset, with 38% intending to pass their business on to their children.
One often-overlooked step in ensuring the future of a business is to ensure a succession plan is in place. This is especially significant for family-owned companies, since the business is often the primary source of income and family wealth for the owner. While every business and family situation is unique, here are a few key tips from Enrique Tarazona, Senior Vice President of Bank of America Small Business, to help get started with succession planning:
Tip #1: One size does not fit all
Planning for the future must account for a wide range of dynamic variables including roles, relationships and skills, personal goals and expectations, health and financial circumstances, market conditions, and the state of the economy.
The transfer of ownership from one family member to another can be challenging and lead to a number of professional as well as personal issue– especially when other family members are also employees, partners or co-owners. It requires that the current owner, most often a parent, be willing to give up some amount of control to the next owner, generally from a younger generation.
In Ramon’s case, his daughter, Jenny Eduardo, already operates the business when her father is away and other members of the family are integral to Il Forno’s day-to-day function.
In Tarazona’s experience, proactive business succession planning not only helps in the process of distinguishing potential family successors, but it also facilitates and prepares them to take over the business and ensures they have the skills, knowledge and financial acumen.
Tip #2: Consider the financials
Some key financial issues must be considered in the case of transfers to family members. If the company is transferred as a gift, business owners show understand what taxes are involved in gift-giving. Just as Bank of America assisted Ramon in securing financing a local business banker can help entrepreneurs make decisions about their company’s financial future. Tarazona mentioned that expert like himself can help business owners become better acquainted with relevant rules, regulations, and possible consequences to ensure their business and assets are adequately protected.
Tip #3: Write out the plan
Business owners themselves should be proactive and determine the type of transaction for and the timing of passing their business on to a family member. According to Tarazona, they should take precautions to avoid allowing life events, liquidity needs or the tax code to make decisions for the business. While it is not possible to plan for every scenario, it is important to begin to develop a succession strategy. A well thought out plan is a living document with many moving parts that should be regularly reviewed and revised to reflect the best interests and needs of the business. Ramon and his family are writing the next chapter to ensure the continued success of their growing Bronx-based business – others should follow their example.
For more research findings on the current Hispanic small business landscape, please visit here.
For more information on business succession planning, please visit here.