There is a misconception that all founders are inherently wealthy when they start a business. This is, of course, not the case for many founders and entrepreneurs who have started companies. At our recent Women & Worth Summit: Actions Speak Louder Than Words, Worth CEO Juliet Scott-Croxford talked to Denise Woodard, founder and CEO of Partake Foods, Vicki Saunders, founder of SheEO, and Christine Leong Connors, managing director and head of Northern California at J.P. Morgan Private Bank, about how to create wealth in the founder community.
“I think sometimes the misnomer in private wealth is we just do the investments,” Leong Connors said. “The investments are important but equally, or sometimes more importantly—and why I personally have spent a lot of time on the compensation side of it—is really understanding what you own, how you own it and how best to optimize for it. Controlling and advocating for yourself, whether you’re a founder or an executive and you’re building along the way, is key to making sure that that piece is well taken care of. We spend a lot of time advising our clients around that piece of it because the asset allocation piece follows after you build the wealth, but I think it’s more important to really understand upfront how you build it in the right way.”
One of the key themes the speakers touched on was the importance of founders understanding that there are multiple ways to go about getting funding for their businesses.
“There are three key things female founders should understand,” Leong Connors said. “First, know that there is choice when it comes to accepting funding and the terms that come with it. Also, there is a deep J curve when it comes to return of liquidity; the investment and building of a business is truly a marathon, not a sprint. Lastly, remember that you are in this process to create something incredible—follow your passions and the money will follow.”
Leong Connors encourages founders and entrepreneurs to take advantage of qualified small business stock, which is affectively a small business tax credit that incentivizes investment in certain small businesses (though, note that some industries, such as financial services and health care, are excluded), according to J.P. Morgan Private Bank.
“For all of the founders out there, there is something incredibly cool called qualified small business stock,” Leong Connors said. “It’s essentially a small business tax credit for those who own stock for five years and a qualified small business stock, which is essentially a C Corp that has less than $50 million in assets or less than $50 million in funds raised. If you hold that stock for five years and beyond, assuming you started any time now through the future, 100 percent of that gain of the first $10 million is exempt from federal taxes, which is incredible.”
While the Private Bank does not provide specific tax advice, Leong Connors and her fellow bankers partner with their clients own advisory team – tax experts, accountants, estate lawyers and other specialists – on these types of strategies.
Qualified small business stock is also very useful for building and sustaining generational wealth.
“As you think about generational planning, I always say that it’s more important to make sure you have enough wealth in your own balance sheet first and never give away too much,” Leong Connors said. “But to the extent you watch your wealth build, and you grow, there’s always going to be the second tax – income tax and then there’s estate tax. How do you think about moving some of that growth and future appreciation to future generations? The coolest part about qualified small business stock is you can actually multiply that $10 million exemption by gifting some of your ownership in your company to children, for example. If done properly, there are some pretty powerful planning tools you can [use to grow your wealth]. But I always say that it comes down to really understanding what you own and how you own it.”
And while there are many tactics founders and entrepreneurs can utilize to grow their wealth, Leong Connors asserts how important it is for them to remember to consider their financial wellbeing in addition to their business.
“Founders and entrepreneurs invest so much in their business and growing their passion, but thinking of their own financial wellbeing, the longevity of their wealth and how that might live on in the next generation are all things that the right financial partner can help them tackle,” Leong Connors said.
Learn more about qualified small business stock here.
J.P. Morgan and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions.
J.P. Morgan Private Bank” is a brand name for private banking business conducted by JPMorgan Chase & Co. and its subsidiaries worldwide. JPMorgan Chase Bank, N.A. and its affiliates (collectively “JPMCB”) offer investment products, which may include bank managed accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC (“JPMS”), a member of FINRA and SIPC. JPMCB and JPMS are affiliated companies under the common control of JPMorgan Chase & Co
