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Family Businesses Face Pandemic Challenges and Legislative Concerns

Family Businesses Face Pandemic Challenges and Legislative Concerns

Surveys shed light on the effects of the pandemic and top concerns moving forward.

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 in August 2021 of 1,000 demographically diverse voters in the United States (the voter survey), who responded to questions regarding how they feel about different types of taxation. Taken together, the surveys provide key takeaways for family businesses—organizations that are always concerned about the economy and legislation and how they both impact their businesses. Below, we provide you with some important results from both surveys.

Family businesses distinguish themselves from non-family businesses in that 76% of them have been operating for more than 30 years, and 17% of them have been operating for over 100 years. More than half (52.4%) pay salaries and benefits above their non-family business competition. In terms of charitable giving, family businesses “give locally”—71% contribute to local charities over national charities (21%), strengthening their impact and making their mark in their own communities.


Pandemic Effects

Unsurprisingly, the FEUSA survey revealed that 58.4% of family businesses saw a decline in revenue in 2020, yet 41.6% saw an increase. Industry conditions, economic conditions and the coronavirus were the top three factors affecting the change in revenue. On a positive note, 85.1% expect their revenue to grow in 2021, with economic conditions playing the major role in growth. 

How did family businesses manage during the pandemic? Approximately 27% of them kept people employed, and 18% protected employees with remote working. They also managed their businesses by reducing business costs (16.4%) and changing their product or service lines (4.8%). While some reduced their workforce (8.3%) and 1.2% reported closing their businesses, over 15% of them were able to support families and health care workers.

When asked to rate economic public policy priorities in terms of their importance, reducing/eliminating estate taxes; reducing regulations; and simplifying the Tax Code took the top three spots. Reducing regulations likely moved up into the top three this year as family businesses faced constantly changing and evolving COVID-19 rules and mandates.


Family Business Tax Concerns

Family businesses rank income tax, estate tax and capital gains as their top three tax concerns, in that order. Their choice for reform of the estate tax is to make the current level of lifetime exemption permanent and not expire at the end of 2025. Their next choice for reform is to reduce the rate of the estate tax from 40% to that of a capital gains tax rate. Repealing the estate tax comes in as their third choice for estate tax reform. While 79.2% of family businesses believe their business is a legacy for their children, only 55% have passed the ownership to the next generation. Many family businesses know they need to do a better job of succession planning, as the Next Gens have increased in number and now exceed the Boomer generation.


Voter Tax Concerns

With proposals emerging from President Biden and his administration that would raise the estate and capital gains taxes on U.S. family businesses, it was important to get a sample of where voters stood on these issues, vis-à-vis family businesses. Some results in the voter survey were surprisingly unified by respondents on both sides of the political spectrum.

Sixty-two percent of respondents cited “a generationally owned family business built on hard work” as the most important business to protect from double taxation, beating out protecting a business with 100 employees (38%) or a business that represents the American Dream (30%). When asked about which is the most important item that the Tax Code should protect, 44% of Republicans and Democrats alike believe that “a lifetime of savings” is the answer.

Interestingly, respondents in the voter survey believed that medium-sized family businesses are overtaxed, not undertaxed. Forty-four percent of respondents believe that these entities pay more than their fair share in taxes, and only 16% believe these entities pay less than their fair share. This is particularly important in a post-pandemic economy in which voter sympathy for family businesses is significant. Support for higher taxes on big corporations remains high—even among Republicans—but opposition to higher taxes on family businesses is just as strong and universal.


Moving Forward

As we move into the second half of 2021, individuals and businesses alike are dealing with COVID-19 vaccines, booster shots on the horizon, a rise in the Delta variant and proposed legislation by the Biden administration. One characteristic of stable family businesses, however, is consistent leadership. With the uncertainty and disruptions caused by the pandemic over the past 18 months, these privately owned family businesses have demonstrated enormous flexibility and creativity to thrive and grow amidst the chaos.  This remarkable resilience will hopefully continue for family businesses to meet the next set of challenges.


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