Family businesses face pandemic challenges and legislative concerns

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    Between January and March 2021, Family Enterprise USA (FEUSA) conducted its annual survey of family businesses in the United States (the FEUSA Survey). FEUSA was also part of a nationwide Survey conducted in August 2021 of 1,000 demographically diverse voters in the United States (the Voter Survey) who responded to questions about their attitudes towards various types of taxation. Taken together, the surveys provide important insights for family businesses – organizations that are always concerned about business and legislation and how it affects their business. In the following we provide you with some important results from both surveys.

    Family businesses differ from non-family businesses in that 76% of them are more than 30 years old and 17% are more than 100 years old. More than half (52.4%) pay more salaries and benefits than their competition from non-family businesses. When it comes to charity, family businesses donate “locally” – 71% contribute to local charities versus national charities (21%), build impact and make a name for themselves in their own communities.

    Pandemic Effects

    Unsurprisingly, the FEUSA survey found 58.4% of family businesses saw revenue decline in 2020, while 41.6% saw an increase. Industry conditions, economic conditions and the coronavirus were the three most important factors influencing sales development. On the positive side, 85.1% expect their sales to grow in 2021, with economic conditions being the main driver behind the growth.

    How did family businesses manage during the pandemic? Approximately 27% of them kept their employees on and 18% protected their employees by working remotely. They also managed their businesses by lowering business costs (16.4%) and changing their product or service lines (4.8%). While some reduced their workforce (8.3%) and 1.2% said they were closing their stores, over 15% of them were able to support families and healthcare workers.

    When asked to assess the importance of economic policy priorities, lowering / abolishing inheritance taxes; Reduction of regulations; and simplification of the tax code took the first three places. The regulation reduction has likely moved into the top three this year as family businesses faced ever-changing and evolving COVID-19 rules and mandates.

    Family Business Tax Concerns

    Family businesses rank income tax, inheritance tax, and capital gains as their top three tax concerns in that order. Your choice for inheritance tax reform is to make the current level of lifelong exemption permanent and not expire until the end of 2025 tax rate. The repeal of inheritance tax is the third choice of inheritance tax reform. While 79.2% of family businesses believe their business is a legacy for their children, only 55% have passed ownership on to the next generation. Many family businesses know they need to plan their succession better as the number of next gens has increased and overtakes the boomer generation.

    Voter Tax Concerns

    With proposals from President Biden and his administration to increase inheritance and capital gains taxes on U.S. family businesses, it was important to get a sample of how voters felt about family businesses on these issues. Some of the results of the voter survey were surprisingly united by respondents on both sides of the political spectrum.

    62 percent of respondents named “a family-owned family business built on hard work” as the single number one double tax protection business, surpassing that of a 100-employee company (38%) or a company that represents the American dream (30%). When asked what the most important thing the Tax Code should protect, 44% of Republicans and Democrats alike believe that “a life of savings” is the answer.

    Interestingly, the respondents to the voter survey were of the opinion that medium-sized family businesses are over- and not under-controlled. 44% of respondents believe these companies pay more than their fair share of taxes and only 16% believe these companies pay less than their fair share. This is especially important in a post-pandemic economy where voter sympathy for family businesses is paramount. Support for higher taxes on big corporations remains high – even among Republicans – but the opposition To raise taxes on family businesses is equally strong and universal.

    Go forward

    As we move into the second half of 2021, individuals and businesses alike are grappling with COVID-19 vaccines, booster shots on the horizon, a surge in the Delta variant, and legislative proposals from the Biden government. However, one characteristic of stable family businesses is consistent management. Given the uncertainty and disruption caused by the pandemic over the past 18 months, these privately owned family businesses have shown tremendous flexibility and creativity to thrive and grow amid the chaos. This remarkable resilience will hopefully continue for family businesses to meet the next challenges.

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