Family Business Owners on Public Policy

Economists seem to be in agreement that 2013 will be a repeat of 2012, with only a slight uptick. GDP growth will be at best 2%, unemployment marginally better at 7.5%, and consumer confidence flat to slightly up.

A recent survey completed by the Family Enterprise USA (FEUSA), an independent non-profit organization, provides a look at the attitudes of family business owners on key issues related to public policy. There were 230 family business owners that responded to this 2013 survey. Because Albu Consulting is heavily invested in family and private businesses, we felt it important to commit this January issue of AlbuonStrategy to highlight some key findings from this important survey. For more information about FEUSA, please visit their website at www.familyenterpriseusa.org.

 Family Business Survey Key Findings

  • While more family business respondents are optimistic about 2013 revenue growth, fewer are projecting an increase in their workforce over that same period.
  • This year, a higher percentage of respondents than last year identified the economic climate and government policy as the biggest threat to the future of their family business.
  • Reducing the deficit and debt, and eliminating or lowering the estate tax are the two most important issues for FEUSA family business survey respondents.
  • If individual income taxes increase, the overwhelming majority of S corps and LLCs who responded to the survey will take additional money out of the business to cover the tax liability of owners, which will impact re-investment opportunities.

 Profile of Family Business Respondents

This year’s respondents represent every region of the country and are involved in a broad cross-section of industry sectors from manufacturing (the largest category at 30%) to construction (11%), wholesale trade (8%), retail trade and real estate (6% each), finance, agriculture, hotel management, restaurants, and more. 58% of respondents carry the title CEO or President, 28% are family members, 14% are Vice Presidents, and the balance are C-level executives.

As in past years, the overwhelming majority of respondents are from well-established firms – 40% have been in business between 30 and 60 years, 22% have been in business between 60 and 100 years, and 10% have been in business over 100 years. These are stable, successful family businesses. One characteristic of stable, successful family businesses is consistent leadership. 27% of our respondents have been leading their companies for between 11 and 20 years, 20% have been leading their companies for between 21 and 30 years. 18% have been at the helm for over 30 years.

These respondents are also significant job creators. Nearly half of the respondents employ over 100 employees. 29% employ between 100 and 500 workers, 8% employ between 500 and 1000 workers, and 10% employ over 1000. 64% of respondents are organized as S corporations or Limited Liability Companies and 31% as C corporations.

Family Business Owners’ 2013 Outlook

FEUSA’s survey measures basic attitudes toward business growth in order to see trends over time. 70% of respondents report revenue growth within the last 12 months, up from 50% of respondents from last year’s survey. The result has been more hiring. A full 54% of respondents indicate that they grew their workforce in the last 12 months in response to the increase in business.

Looking ahead, general attitudes toward 2013’s business outlook remain slightly optimistic, measured by revenue growth projections, but companies are reluctant to commit to adding workers. While 75% of respondents anticipate that their revenues will grow in the next 12 months, only 45% believe they will add workers. As noted above, this is down from the 54% employment projection in last year’s survey, which proved to be accurate.

FEUSA survey findings would suggest that this dip is likely due to anxiety about the economic climate and public policy. One of the survey’s benchmark questions is what a respondent believes to be a greater threat to the future of their business: internal factors such as disagreements between family members about operations, the strategic direction of the business, or conflict in general, or external factors such as the general economic climate, tax policy and government regulation?

Last year, 82% of FEUSA survey respondents said that external factors were a greater threat to the future of their family business. This year, that figure has grown to 91%, indicating an even more heightened sensitivity to the economic environment and the role government policy and uncertainty is playing in business planning and development.

Consistent with the commitment that family firm’s make to their employees, FEUSA continues to see evidence of their retention of their workers despite flat or lower revenues. Last year 50% of respondents reported flat or lower revenues, but only 34% reported reducing their workforce. This year, only 30% reported flat or lower revenues. Of these businesses, two-thirds said they maintained all of their workers despite slow sales.

Family Owners’ Attitudes About Public Policies

Survey respondents were asked to rank how important various public policy issues are to them. For anybody who studies family enterprise or has come to know family business owners personally, the answers will not be surprising. The issue that got the strongest response was reducing the deficit and debt – 54% rated it as important (32% very important). This validates the central value of stewardship that family businesses embrace; leaving the company in a better position than when one’s own generation took it over is what drives family firm successors. Not surprisingly, this sense of stewardship of the national economy and attention to fiscal responsibility increased with respondents from more established companies; 60% of respondents from firms over 100 years old said that reducing the deficit and debt was important (45% said very important).

In a question about the estate tax, regardless of size or age, 41% of respondents favored eliminating it altogether, 20% believed the tax should be reduced for every estate, regardless of size, and 28% believed is should remain at the current levels. This extra tax burden limits the ability of families to pass on an asset they have taken risks to build. As important, the financial and human resources it takes to plan around the ever-changing tax and keep the business operating drains investment that would otherwise go to business expansion.

In the context of debate about increasing individual income tax rates, the question often comes up about how this will impact businesses that are organized as S corporations or Limited Liability Companies (LLCs). FEUSA’s survey indicates a strong plurality (47%) that “will disburse additional funds to owners to ensure that they receive distributions sufficient to pay their taxes resulting in less money available for capital investments and other company expenditures” to deal with this issue. This is significant because of the survey respondents that predicted that they would add employees in the next 12 months, 70% are either S corporations or LLCs. Taking more money out of their operations will directly impact their expansion opportunities.

Attitudes about government regulations also seem to be a function of the age of a family firm. While a 38% plurality of the overall sample said that regulations often focus on issues that their company had already addressed, a full 60% of respondents with over 100 years in businesses selected this option. FEUSA suggests that because family firms are stewards, many of them long ago adopted policies that invest in the health, wellness and retirement security of their workers or the protection of the natural environment in their communities. What FEUSA sees anecdotally is that new regulations require complicated and duplicative processes addressing policies family firms already have in place.

Finally, we asked an open-ended question about what the most important federal policy or regulation confronting respondents’ business is right now. We provided no suggested answers, only a blank space. A plurality of respondents (29%) said Obamacare / health care was their biggest concern. 22% indicated taxes (income, estate tax, and general unpredictability) are their biggest concern.

Family Enterprise USA (FEUSA) is an independent, 501(C)(3) national nonprofit membership organization whose primary purposes are to highlight the positive contributions made by America’s business-owning families, draw attention to the challenges they face due to public perceptions and public policies, and unite the country’s business-owning families so they may begin to act collectively.

 http://www.familyenterpriseusa.org/

 


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