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Testing times breed caution in US-based family businesses

Crises has narrowly been averted in the US with the recent fiscal deal, but the current economic climate and political uncertainty is still one of the biggest concerns for family businesses, according to research.

Crises has narrowly been averted in the US with the recent fiscal deal, but the current economic climate and political uncertainty is still one of the biggest concerns for family businesses, according to research.

The 2013 Family Enterprise USA survey found that 91% of respondents considered economic uncertainty the greatest concern for their business, a 9% increase on last year’s survey. Non-profit advocacy group FEUSA surveyed 230 family firm executives for the research.

Ann Kinkade, president of FEUSA, told CampdenFB: “Perhaps most troubling is that the fiscal cliff deal does nothing to deal with our country’s budget deficit and debt, which 54% of our 2013 survey respondents identified as the most pressing public policy issue. In fact, this issue was simply kicked down the road by attaching it to the coming debate around increasing the debt limit.”

Concern for the economy was listed above any internal management problems, family disagreements or issues relating to the business's strategy. But despite general anxiety, 70% of respondents reported revenue growth in the last year – up from 50% the year before.

Those surveyed also suggested changes to owners' personal income tax rates could have a big impact on businesses, particularly on companies registered as subchapter S corporations. Under subchapter S corporation regulations, income is not taxed at the corporate level but at shareholder level. Once income is distributed to shareholders they are obliged to declare it and are taxed accordingly.

Under the terms of the US fiscal deal on 31 December, income tax will be increased to 39.6% from 35% for individuals earning over $400,000 and married couples earning a combined income of $450,000. Kinkade told CampdenFB: “Since an overwhelming majority of family firms are organised as subchapter S corporations, an increased income tax will hit these family business owners.”

The survey, carried out before the US fiscal deal on 31 December, found that if individual income taxes were increased, 47% of respondents would “disburse additional funds to owners to ensure that they receive distributions sufficient to pay their taxes, resulting in less money available for capital investment and other company expenditure”. The prospect of income tax hikes was already affecting respondents' plans for their workforces – despite 75% anticipating revenue growth in 2013, only 45% planned on adding staff, a fall of 9% on the 2012 results.

Looking to the future, Kinkade said in a statement: “Family-owned enterprises are a stable and resilient force for long-term economic growth and jobs, but they need certainty in government policy from their leaders [and] tax policy that encourages investment and growth.”

A full copy of FEUSA’s research will be available on its website from 11 January.

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