A survey this year of hundreds of U.S. family-owned businesses showed that owners prioritized keeping employees on the payroll even as the pandemic disrupted their business and that most regularly give to local charities.
To Patricia Soldano, the survey results indicate how family-owned businesses are different.
“Family businesses plan their business as a legacy. They don’t do it quarter to quarter like public companies have to do and worry about,” said Soldano, president of Washington, D.C.-based Family Enterprise USA, which advocates for family-owned businesses. “They have a culture of serving their employees and their communities and they believe that their legacy is not only for their families but for their employees and for their community, so they see it differently, they manage differently, and they have a different culture.”
Family Enterprise USA annually surveys family-owned businesses across the country to gauge trends and issues of concern, particularly on taxes and economics.
This year’s survey — conducted in January and February and issued this past spring — drew 300 responses from family-owned businesses large and small and across various sectors of the economy, with nearly one-quarter in manufacturing. Annual sales of respondents’ companies ranged from less than $1 million to more than $50 million, while the companies ranged from 10 years old to more than 100 years old.
About one-third of the responding businesses told Family Enterprise USA that they are in the second generation of leadership, and 21 percent are led by a third-generation family member.
The survey found that nearly 90 percent of the respondents kept people on the payroll during the pandemic rather than implement layoffs. More than half actually added jobs during the pandemic.
Family businesses in West Michigan track with the national data, including in philanthropy and retaining jobs during the pandemic, according to Robin Burns, director of the Family Business Alliance in Grand Rapids.
Many responses in the 2022 survey mirror results from prior years, with tax issues at the forefront, Soldano said.
Nearly half of respondents ranked the federal income tax as top tax policy concern, followed by the estate tax at 27 percent and the capital gains tax at 13 percent.
Nearly eight out of 10 family-owned businesses operate as an S-corporation and did not get a reduction under the tax cut bill that Congress enacted years ago under former President Trump, Soldano said. The owners instead pay the higher individual income tax rate on income that passes through the business, she said.
Nearly one-third of survey respondents this year rated repealing the federal estate tax as their most important public policy issue, while another one in five support reducing the rate to 20 percent, which is equal to the capital gains tax.
Estate taxes have always been a major issue for family-owned businesses and regularly rank as a concern in annual surveys, Soldano said.
Family Enterprise USA considers the estate tax a threat to family businesses and the jobs that they create. The organization also views the estate tax as a threat to local philanthropy when a family ends up selling because it cannot afford the estate tax, Soldano said.
Owners can plan for the estate tax by giving away their assets through a trust, “and for many people that’s not what they want to do. They’d like to keep control of their assets,” Soldano said.
The federal law does exempt the first $12 million in assets over an individual’s lifetime from the estate tax based on market value, a threshold that ends in 2026 and returns to half that amount. Nearly a quarter of Family Enterprise USA survey respondents ranked making the present exemption permanent as their top policy issue.
Legislation proposed last year and still sitting in Congress would reduce the federal tax rate on estates and generational business transfers from 40 percent to 20 percent. Other bills would repeal the estate tax outright.
Even cutting the estate tax rate in half would benefit family-owned businesses, Soldano said.
“You’d still have the tax and still have to pay the tax, for those that believe the tax is something necessary. But if you can get it to 20 percent, at least that’s manageable, and once you get it to 20 percent, it’s going to be much easier to get to zero, eventually,” she said.
Nationwide, family-owned businesses support 59 percent of the workforce, or 83 million jobs, and generate 54 percent of the gross domestic product, according to Family Enterprise USA.
In West Michigan, the Family Business Alliance has 166 member companies that are mostly smaller businesses and range up to major corporations such as Amway Corp., Haworth Inc., Meijer Inc. and Bissell Inc. Nearly half of the Family Business Alliance’s members employ 50 or fewer people, and another 29 percent employ 51 to 250 employees, Burns said.
Burns describes the large base of family-owned businesses across the region as the “silent giants” that play a “considerable” role in West Michigan’s economy.
“So much of your day-to-day interaction is with a family business that you don’t quite realize,” she said.