Business Owner Factoids

Who is the typical business owner? The answer may surprise you.

This chart summarizes the findings of an IRS study of everyone who died in 1993 with a net worth of at least $600,000 (and thus required to file an estate tax return). The left-hand column represents people worth from $600,000 to $1 million; the next one, people worth from $1 to $2.5 million; and so forth. The right-hand column shows people worth $10 million or more.

Blue represents the percentage of the decedent's assets tied up in real estate . The chart makes clear that real estate (probably the person's house) is the biggest asset of folks worth under $1 million but the richer you get, the less important real estate becomes. Red represents liquid assets (stocks, bonds, mutual funds, etc.), the relative importance of which grows slightly the richer you get. Yellow is what grows dramatically. Yellow represents closely-held stock which is another way of saying ownership in a private business. Closely-held stock is the single biggest asset of America 's wealthiest citizens.

In a nutshell, the surest way to get rich in America is to own a business.

According to the IRS reports over six million businesses file tax returns each year: 80% are companies, 20% are partnerships. (Don't forget there are another 20 million unincorporated businesses!) Fewer than 11,000 of these companies are found on Wall Street; 99.9% of American businesses are privately owned and their stocks are not traded on any stock exchange.

Small business is BIG business. It certainly powers the American economy. For example the US Small Business Administration reports privately-owned companies are responsible for 58% of all private-sector jobs, 43% of domestic sales and 51% of our private gross domestic product.

These 6.6 million businesses are not all alike. The US Department of Labor reports 55% of them employ fewer than 5 people, and another 20% employ 5 to 9. That means 75% employ fewer than 10 people. That also means 25% employ 10 or more. 25% of 6.6 million businesses is 1.6 million companies.

SPARDATA has valued over 25,000 businesses. We have found that companies with ten or more employees tend to be worth $1 million or more. Another rule-of-thumb if you will is that if a business is doing $1 million or more in sales, chances are it is worth at least $1 million. There are exceptions to the rule of course.

If you read the best-seller The Millionaire Next Door , you know the business need not be glamorous to make its owner a lot of money. For example, guess what occupation is most likely to make somebody a millionaire today? Doctor? Lawyer? Real estate? Guess again. Statistically speaking, according to The Millionaire Next Door the occupation most likely to make somebody a millionaire is to own a dry cleaner!

So if you want more "millionaires next door" as your clients, look for owners of businesses with ten or more employees or $1 million or more in sales.