Tax Strategies for Family- and PE-Backed Restaurant, Franchise, and Hospitality Businesses

Summary: Your ownership model shapes your tax priorities. Family-owned restaurants often focus on long-term wealth preservation and succession, while PE-backed groups typically prioritize short- to medium-term value creation, EBITDA, and exit readiness. In this article, we explain how both types of businesses can benefit from leveraging tax deductions, credits, and tax-efficient structuring to minimize their tax liability and strengthen cash flow.

For most restaurant, franchise, and hospitality business owners, taxes are a top concern…and they can also be a big headache. But if you manage taxes appropriately and strategically, you can reap savings to fuel future growth, preserve generational wealth, and take your business to the next level.

To develop the right tax strategy, it’s important to define exactly what type of business you own. For instance, do you run a family-owned restaurant passed down through generations? Or is your business part of a franchise group that is backed by private equity (PE)? While family- and PE-backed business often have different goals, they share one common need: smart tax strategies that align with their vision for the future.

In this article, we’ll unpack family- and PE-owned business tax needs to help illustrate how tax strategy can differ across ownership groups. This comparison will help you gain a better understanding of how your own long-term tax approach may be impacted by the current or future ownership structure behind your business.

Family-owned business goals: playing the long game

If you run a family-owned restaurant, franchise, or hospitality business, you are likely focused on achieving growth goals that extend far beyond the next quarter. You may prioritize financial objectives that balance immediate tax efficiency with the need to create multigenerational wealth that benefits your entire family. Your key planning strategies may include:

Estate and gift tax reduction to foster wealth preservation and growth

When it comes to estate planning, family-owned businesses can consider utilizing tools like Grantor Retained Annuity Trusts (GRATs), which help transfer appreciating assets to heirs at minimal gift tax cost, and Intentionally Defective Grantor Trusts (IDGTs), which freeze asset values for estate tax purposes while allowing future appreciation to occur outside the estate. Spousal Lifetime Access Trusts (SLATs) can offer married owners continued indirect access to trust assets while reducing estate exposure. Additionally, family-owned businesses can use valuation discounts and gifting non-voting interests to reduce the taxable value of business ownership transfers; but keep in mind that you should only implement these strategies under professional guidance to withstand IRS scrutiny.

Succession planning strategies and vehicles

Many family-owned businesses use trusts or buy-sell agreements to prepare the next generation to take the reins of their business. It’s also important to optimize your current tax deductions and credits to build steady cash flow and reinvest in your business for future generations.

PE-backed business goals: focused on value creation

Unlike family-owned businesses focused on generational wealth planning, PE investors approach tax strategy with a different lens, and that extends to the companies in their portfolios as well. PE investors and firms deploy tax strategies that are geared toward short-to-medium-term growth and investor returns, focusing on structuring acquisitions to maximize after-tax returns and optimize EBITDA and cash flow.

On the private equity side, deal structuring and transaction optimization are key. PE-backed hospitality businesses often weigh asset versus stock purchase structures, where an asset purchase can allow a step-up in basis for acquired assets and potential for accelerated depreciation through Section 179 or bonus depreciation.

Aside from these strategies, cost segregation studies can also help PE groups identify building components that are eligible for faster depreciation, enhancing upfront cash flow. By performing thorough transaction cost analysis, PE groups can help ensure that they properly allocate due diligence and financing expenses for tax purposes.

Additionally, PE funds may use blocker entities to help shield certain investors from unrelated business taxable income (UBTI) or effectively connected income (ECI). They may also use step-ups in basis, debt structuring, and interest deductions to unlock value and streamline transactions. This helps ensure exit readiness and that holding periods qualify for favorable long-term capital gains treatment.

While their perspectives differ considerably on long-term goals, family-owned and PE-backed businesses do share some overlapping tax objectives. You can see some of the parallels in the chart below:

Tax strategy comparison: Family-owned vs. PE-backed businesses

Partner with an advisor that has dual-sided experience

Whether you are a family-owned business or a PE-backed portfolio company, your goals may shift and change over the years. The key is to partner with an industry-specific CPA and business advisor that understands and supports both sides of the spectrum.

At Aprio, we blend deep industry knowledge, M&A tax structuring experience, and private client service under one roof. Our clients include family-owned businesses planning for succession, PE-backed franchises optimizing their operations for a future sale, and every business in between. From entity structuring to exit strategy, Aprio is here to help restaurants, franchises, and hospitality businesses maximize value and minimize risk.