Small and medium-sized businesses are the backbone of the American economy. Small businesses, those with 500 employees or fewer, account for 99.9% of US firms, according to the Small Business Administration and less than half (46%) of all private sector employment. Recently, Vice President Kamala Harris announced a plan to expand the small business tax credit from $5,000 to $50,000, with the stated goal of generating 25 million new small business applications during her first term as president.
Below Peter Boumgarden, the Koch Family Professor of Family Enterprise Practice at the Olin Business School at Washington University in St. Louis and director of the Koch Family Center for Family Enterprise, discusses Harris’ plan and other ways the government can support new and existing small businesses.
Do you think Harris’ plan is the best way to support small businesses? Are there other policies that you think the government should also consider to create an optimal small business environment?
Harris’s proposal here is interesting. At its core, this piece builds on an awareness that starting a new business can be costly; their group is estimated at $40,000, but the current deduction limit is only $5,000. With the pandemic coming out, we have seen a significant increase in interest in ownership. In 2023 alone, 5.5 million new business applications were filed, making it the strongest year on record and the third consecutive year of historic small business growth. A policy like this is targeted at getting people into the game.
However, we also need to focus on supporting our existing small and medium-sized businesses and their employees. A large percentage of these businesses are owned by baby boomers who are nearing retirement. The coming tidal wave of these transitions has been called the “silver tsunami.”
Over the past year, I have been working with my colleagues at Olin, experts at the Brookings Institution and other industry leaders to understand the impact this transition will have on owners, employees, communities and the economy. As part of the project, funded by the Bellwether Foundation, we also looked at ways in which the federal government could use policy to aid migration. We will share the complete findings at a presentation in Washington, DC, in October.
Based on our previous findings, however, I was surprised by the level of interest in employee ownership by current owners. We also find that employee ownership models — including, but not limited to employee stock ownership (ESOP) models — produce relatively strong performance results compared to other transfer methods. of ownership. Furthermore, employee ownership offers a path toward maintaining and expanding community wealth.
With increasing interest in this space, and even large institutional investors like KKR exploring how to fold employee ownership into their investor toolkit, I think a set of policies making it more manageable for businesses in transitions is an attractive policy lens.
Additionally, I can see the benefits of exploring whether changes in capital gains can nudge margin investors toward longer holding periods and thus more creative, patient strategies in capital. From an investment perspective, there is benefit when people lean towards the patient capital investment side. This is the case for family ownership, for example. If you manage a business for a long time, you take a different approach than buying and flipping for a short time.
Harris’ plan addresses how the federal government can help new small businesses. How can state and local governments and private entities help small businesses thrive?
From a city and state perspective, it’s worth looking at the conditions that make startup, or continuation, more attractive and possible. Certain cities, like Nashville for example, have done a good job increasing the attractiveness of starting a business in their region.
Businesses also depend on labor. If you don’t have a good workforce, it’s hard to have the quality of service you want to offer the world. This is a case for investment in education, whether K-12 or long-term incentives.
Starting a business is one thing but keeping it up and running is another challenge. Groups like St. Louis’ Cortex Innovation District or Delmar Divine for nonprofits offers shared services and a community of fellow entrepreneurs, all of which can be helpful for cross-pollination of good ideas to keep things going.
Is there a silver lining to this ‘silver tsunami’?
The transition is not easy. I was just chatting with a neighbor who owns a retail establishment in town. Without kids to take over the business or an employee base willing to buy it, he doesn’t know what’s next. But these changes also provide potential opportunities.
As easy as it is to wax nostalgic about the advantages of small businesses — they tend to show the highest on general trust scales, for example — they don’t always offer good jobs. And the composition of current business owners is not the most diverse crew. If done correctly, this transition will provide opportunities for improving the quality of work and diversifying and expanding the pool of business ownership. This is exciting in many ways!
#WashU #Expert #Small #business #plans #include #ownership #transition #support