State’s Family-Owned Businesses Remain Optimistic

HARTFORD — Connecticut’s family companies are vital contributors to the state’s economic success, and like most companies, they are very concerned about rising costs, the stability of the economy, and other external forces that could impede their growth. Their biggest challenge is the overall cost of doing business, especially health care costs, the personal income tax, and energy costs.

They also face numerous challenges that are unique to family-run businesses, including business succession and planning issues. But despite these challenges and a troubled economy, many family businesses are optimistic about their future.

Those are some of the key findings of the Connecticut Business & Industry Association (CBIA)/ University of Connecticut (UConn) 2008 Survey of Family Businesses. The survey explores key issues facing family-business owners and examines concerns they have about the future. The survey is part of an ongoing partnership between CBIA and UConn’s School of Business Family Business Program, designed to help family-owned companies through all facets of business planning, development, and operation.

From “mom-and-pop shops” to industry powerhouses, family-owned businesses comprise at least two-thirds of all businesses in the United States, contributing 64 percent of the Gross Domestic Product (GDP) and employing more than 62 percent of the workforce.

“It’s clear that family businesses represent a key segment of our business community and have a critical impact on our state’s economic well-being,” said John R. Rathgeber, CBIA president and CEO. “Their ability to grow and prosper depends not only on the family structure that governs business operations but also on the creation of a pro-growth, pro-jobs business climate in Connecticut.”

The vast majority of family businesses surveyed (84 percent) cited high health care costs as having a strong negative impact on current and future growth. This is not surprising, given that Connecticut has the second highest cost in the United States for employee-sponsored health care.

Taxes, Energy Factors

Other barriers to growth include the cost of doing business (75 percent), the personal income tax (68 percent), and energy costs (67 percent). An even greater percentage of respondents (82 percent) expect the cost of doing businesses to negatively affect their future growth, and three-quarters (75 percent) expect rising energy costs to impede their growth in the years to come.

“Family businesses clearly have pinpointed the combination of corporate and personal taxes as hampering their current and future growth,” said Jay M. Sattler, tax partner at Blum Shapiro. “This is a critical issue that I’m hopeful the legislature will address.”

Family-business owners believe that state government can do more to encourage family businesses to remain or locate in Connecticut. According to the respondents, the most helpful actions that lawmakers could take would be reducing taxes and offering tax credits (80 percent), reforming property taxes (49 percent), encouraging business investment (47 percent), improving the regulatory climate (42 percent), and reforming/repealing the estate tax (41 percent).

“These numbers are up 10 to 20 percentage points from last year’s survey, indicating a stronger need for state legislators to take actions to help Connecticut’s family-run businesses continue to grow and prosper,” said Mr Rathgeber.

Despite a troubled economy, slightly more than half (51 percent) of family business leaders have an optimistic outlook for their firm’s profitability over the next 12 months, but 11 percent are not at all optimistic about their profitability. In the areas of gross revenue/sales, net profits, and number of employees, the majority of businesses expect some increase in each category over the next 12 months.

“Family firms are better equipped than most to weather slow economic growth and hardship,” said Scott Livingston, president and CEO, Horst Engineering & Manufacturing Co. Still, he cautions, “The survey results indicate strong concerns about our state’s regulatory climate and business costs, which should be a red flag to legislators.”

Unique Challenges

Family-run companies also face a unique set of challenges. More than half (52 percent) of respondents indicated that maintaining work/life balance is one of the challenges of operating a family business. Other challenges cited were family communication and employment issues, lack of documented policies, perception regarding the competence of family members, and succession issues.

Current and future leadership is critical to the majority of family businesses. At least three-quarters of all respondents expect their president and/or CEO to retire within the next 15 years. With retirement approaching for many family business leaders, a well-planned exit strategy and succession plan are necessary. Fourteen percent of respondents have a written succession plan, 28 percent have a verbal one, and 45 percent anticipate developing one.

“Many of the challenges faced by family-owned firms are the same as those confronting any other business in Connecticut,” said Peter Gioia, CBIA vice president and economist. “For family-business owners, however, the unique problems posed by succession planning and family employment add to the complexity of operating a business. Addressing both sets of issues is crucial to family businesses’ long-term success and sustainability.”

The survey was sent by email to approximately 4,500 Connecticut businesses as well as members of the UConn Family Business Program. There were 573 surveys returned, for a response rate of 13 percent and a margin of error of plus or minus 4.1 percent.

CBIA is the state’s largest business organization, with 10,000 members.