Family Business and the Economic Downturn

Recession, stagflation, deflation, inflation, and even depression are words used to spell it out the existing economic conditions. Whilst it is too quickly to properly define our economic times, we are clearly in the midst of a significant downturn in the United States that will affect economies and citizens around the world.

Indicators of the distressed economy add a sharp drop in housing prices, a credit crunch because of the subprime mortgage debacle, rising unemployment, rapidly increasing oil prices, the falling value of the dollar, large trade imbalances, and expanding price inflation. Just in the event, you have to pile on more, a prolonged and unpopular war and a pivotal presidential election amplify uncertainty in the U.S. Together these factors suggest a prolonged economic downturn (feel free to express recession if you must) throughout 2018, with a complete recovery that could not be completed until late 2019. Furthermore, the United Nations warned in a January 2018 report that economic crisis will reach throughout the world. The U.N. urges governments and central banks everywhere to interact and not react as though this really is simply a U.S. problem. As probably the most active capital market with the dominant currency, the U.S. economy affects developing countries in addition to the economic giants. Based on the U.N., the economic crisis could have far-reaching social and political consequences that’ll even affect the vibrant economies of China, India, Brazil, and Russia.

Since the economists, policymakers, and television pundits debate the duration and implications of the slowdown, our concern is how a slowdown affects family businesses. Conventional thought is that economic conditions such as for instance recessions are devastating to family business economics. This assumption is partially correct in that family businesses in industries most suffering from the downturn (e.g., housing-related industries, real estate, financial services, luxury retailers, and durable goods producers and sellers) will face dramatic decreases in demand and/or changes in consumer preferences. Other family businesses which were able to survive in strong economic times with weak strategic planning, financial management, and governance infrastructure will find that their lack of discipline will result in failure in tougher times.

Businesses where poor family dynamics can be found also suffer in difficult economic times, which tend to exacerbate ongoing family conflict. Imagine, like, a small business run by one sibling or cousin whose relatives aren’t engaged in the business. If this group does not go along well, there will be a tendency the culprit the relative responsible for poor financial performance even if the situation is outside the leader’s control. Despite every one of these challenges to family businesses, economic hardships historically have now been the greatest time of development, growth, and opportunity for family businesses. Family businesses are generally more responsive and flexible than non-family counterparts, and their long-term outlook, willingness to invest, and commitment to building a heritage allow them to take advantage of the opportunities presented available on the market of failed competitors and shifting consumer preferences.

Additionally, recoveries periods often serve while the birthplace for new family businesses. In the U.S., the development of new businesses historically increases during an economic crisis or throughout the recovery period.

Furthermore, even a skilled team might not have the ability to help, as the kind of recession forecasted will be more complicated and dynamic than we’ve ever seen before. The question remains-will today’s family business leaders are successful in navigating these complexities? One concern is that our extended economic boom has led to tremendous wealth creation and management success that has in some cases, fostered bad habits for management, unreasonable expectations for shareholders, and overconfident business leaders. Success often leads to complacency. When businesses begin to fail, reactive business patterns such as for instance hunkering down and broadly cutting costs without regard for circumstances could be disastrous. Oftentimes, the most effective strategy may be purchasing moderate-risk opportunities.

The picture painted in just about any media outlet does not look too bright for the economy. Does that mean that we must just provide our hands and stop trying? Certainly not.

Key drivers of capitalism would be the expectations and attitudes of consumers and producers. Family business owners routinely indicate optimism within their businesses. An example could be the 2007 Family to Family Survey, which indicated that 87% of family business leaders were highly optimistic over another five years regarding their success. As late as January 2008, a National Federation of Independent Business survey found that while businesses owners get you ready for changes brought with a slowing economy, they are still cautiously optimistic about the ongoing future of their own business success.

The issue now’s that consumer confidence is fading and traditional government responses such as for instance economic stimulus packages and central bank adjustments might not need the same impact as in the past. This highlights how different our economic environment is today and demonstrates the uncertainties that exist concerning how exactly to best manage the family business to make sure long-term survival.