Family Business Should not be Confused with Small Business in U.S.

Excerpt from Summer 2013 Campden FB magazine
Giulia Cambieri reports

The US produced some of the world's greatest businesspeople, so it should come as no surprise that American family businesses tend to be very entrepreneurial. According to a recent survey by the Conway Center for Family Business, during their lifetime US family companies control on average 6.1 firms, set up 5.4 firms from scratch and create 2.7 through mergers and acquisitions. They also spin off 1.5 companies and change sector twice.

However, unlike the European Union, the US government doesn't have an official definition of family business, something that may explain why 76% of the country's family firms feel that policymakers don't fully understand their needs...Succession may also pose a big challenge in the future - by 2017 more than four in 10 of the country's family business owners expect to retire, but less than half of them halve already selected a successor.

"Our policymakers don't understand what a family business is and business policies are often developed with no consideration for the family-ownership structure of a company." says Ann Kinkade, president of [Family Enterprise USA, an advocacy group for family firms]. "This is a challenge because policymakers don't consider who the main drivers of our economy are - it happens to be family enterprises - and how their policies or decisions affect them."

Read the full article here, on pages 15-16.

Family Enterprise USA signed a letter of support written by Family Business Estate Tax Coalition to Senator John Thune as the Senator presented an amendment to the Fiscal Year 2014 Senate Budget Resolution, adding a deficit-neutral fund to provide for the full and permanent repeal of the estate tax.

View a copy of the letter here.

By Tess De La Mere, Campden FB, 4 January, 2013

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.

View the original post at http://www.campdenfb.com/article/testing-times-breed-caution-us-based-family-businesses.

The misaligned currency bill, or the "Currency Exchange Rate Oversight Reform [bill] of 2011,” passed by the Senate on October 11 (63-35) has drawn both praises and criticism. Some on the hill view the bill as a good political gesture in sending China a message. However, Republican Senator Jeff Sessions of Alabama, who co-sponsored the bill, states that other members view the act as, "Good politics, but [not] good policy.” President Obama expressed a disinterest in signing a bill that would be without weight and merely a gesture for domestic political gains. Business Week, Oct. 17^th – Click Here for full story.

China has expressed a direct disinterest as well. China's Ministry of Foreign Affairs spokesperson Ma Zhaoxu criticized the bill as "doing good to nobody, and it will bring nothing but harm." He went on to say, "The passing of the act, under the pretext of so-called 'currency imbalance,' is a protectionist measure in nature, which severely violates the WTO rules." China implied that the bill would not help alleviate America's inherent economic problems. China's spokesperson went on to say, "Not only will it fail to solve the economic and employment problems in the U.S., but it will severely obstruct China-U.S. economic relations and trade." China emphasizes the stressed trade relationship created by the bill will have broad economic implications and may ultimately backfire the global economy's recent pickup. CNN MONEY, Oct 12^th – Click Here for full story.

Both sides of the aisle are faced with a cross-party problem: Does the U.S. want to unilaterally protect "fair trade” and seemingly bite the hand that feeds us or does the U.S. want to idly stand as jobs fail to be created because employers have a disadvantage against the Chinese?

U.S. manufacturers and other industries argue they are losing contracts to China because China is undervaluing its currency by 20 percent. U.S. Family businesses are not invulnerable. In 2009, Automation Tool & Die Inc, a family owned business near Cleveland Ohio lost a $1 million contract to manufacture seat frames for long haul trucks to a Chinese competitor. Owners and Brothers, Bill and Randy Bennett said the Chinese competitor underbid them by 20 percent and they lost the bid because of that difference. Business Week, Oct. 17^th – Click Here for full story.

Some economists conclude that a forced realignment will be detrimental to the service and retail industries. Most of America's retail and service industries are dependent on the cheap goods available from China. The increase in business's bottom line will ultimately raise the prices to the consumer which in will slow down consumption and more broadly, slow down the hiccupping economy.

It's a tough choice, and the bill hints at the problematic solutions of the 1930's series of protectionist bills that plunged America further into the depression.

But, these arguments are getting ahead of themselves. The bill is not offering a direct solution (or attack) on the misaligned currencies, but rather a vehicle for which the government can determine misaligned currencies and their solutions. The solutions express the use of an open economic forum and are not limited to short sighted tariffs and other detrimental devices.

The bill itself tries to straddle the two spectrums in offering the use of the International forums. The bill states that the Secretary of the Treasury shall semiannually analyze the ‘real' effective exchange rates of foreign currencies to determine if they are ‘misaligned' through exchange manipulation or the over imbalance of foreign reserves/assets. The Secretary, firstly seeks the International Monetary Funds' advice with respect to the matter, and secondly seeks multinational appropriate policies, and thirdly produces a report to congress who determines the domestic footing. There are also subsequent Waivers may be implemented if the manipulating country is "in the vital economic interest of the United States.” See the Full Bill Here – S. 1619

The debate has become heated over the last few months, but Family Business should look into how the bill will effect themselves. The Bill does not imply that America will automatically implement tariffs if the Chinese Yuan is determined to be misaligned. The relationship is too complex for such a short sighted ‘solution', and America, as it is now, will implement a multilayered and multinational approach. The Bill will probably be used to merely determine the misaligned currencies whose subsequent solutions are cohesively addressed both on the International Stage and Capitol Hill. Family Businesses, large and small, should continue to research and be aware of U.S. policies towards China as it affects their success.

New Report Shows 112th Congress, Leadership and "Super Committee” Members Have Substantial Ties to Family Business

Family businesses are a pipeline to jobs but are often victims of bad policy

Washington, D.C. -- What do House Speaker John Boehner, Senate Finance Committee Chairman Max Baucus, and one-third of the members of the new Joint Select Committee on Deficit Reduction have in common?

They all have either worked for or have ties to a family business. According to a new report released today by Family Enterprise USA, the 112th Congress has high percentages of members with direct or indirect ties to family business—a total of 155 members of the U.S. House of Representatives (118 Republicans and 37 Democrats) and 37 U.S. Senators (23 Republicans and 14 Democrats).

Why is this important? Because family businesses are a pipeline to job creation, retention and sustained economic growth. Family businesses have long been a critical part of the U.S. economy. Studies show that family businesses employ 63% of the U.S. workforce and generate 57% of the nation’s Gross Domestic Product. And they are longer-lived than nonfamily firms. With 5.5 million family businesses, it’s no wonder that there is a significant portion of the U.S. Congress who have experience running their own business or who have family members dependent on the success of a business.

"If lawmakers are looking for new ways to create jobs, pursuing policies that will help family businesses thrive would be a great place to start,” said FEUSA President Ann Kinkade. "Unfortunately, current tax and regulatory policy have created a lot of uncertainty for families seeking to expand a business or keep it alive in the community for generations.”

The FEUSA report "U.S. Congress: The Face of Family Business" offers a complete analysis of members with a direct or indirect stake in a family business with a complete table of the member, district and family business tie. The FEUSA report was derived from an extensive review of publicly-available information about Members of Congress and the U.S. Senate, including their public biographies, public statements, and financial disclosure information provided in accordance with House and Senate rules.

Family businesses have leadership tenure four to five times their non-family counterparts, are slower to reduce their workforce in a down economy, and carry much greater equity as they identify debt as an unjust burden on the next generation. Unfortunately, threats to increase individual income tax rates – the vast majority of family businesses are organized as "pass through entities” for tax purposes – and uncertainty surrounding the estate tax have caused many families to withhold new business investment.

"There are ready answers to the question of how to create jobs and economic growth in America. In fact, many Members of Congress need look no further than their own kitchen table to find them,” said Kinkade.

Click here for the full report.