Are family businesses well prepared to survive during economic turmoil?

For all the challenges however, family businesses seem to thrive particularly well in volatile markets and even after recessions.

Optimised profitability ratios

Family businesses tend to run a tight ship when it comes to their spending, and their profitability ratios tend to be optimised as a matter of principal. While some larger corporate businesses have to look to cut costs as a way to deal with an economic shock or a downturn, family businesses are typically already very lean. This is a distinct advantage at all times, but particularly in challenging economic landscapes.

The trend towards low spending is typically explained by the fact that the family is footing the bill of an expenditure. In turn, this means that spending is more carefully considered and takes place when it is a ‘must’ rather than a ‘nice to have.’

Short term pain, long term gain

Family businesses are inclined to make faster, more proactive decisions in financial downturns, but at the same time, they’re thinking in different timelines to an average company.

Faced with a recession or turbulent markets, most businesses think in terms of short-term to medium-term survival. A family business, by definition, is forced to think long-term, because the livelihood and legacy of multiple generations are at play. A family business can’t make a decision which benefits the business in the short-term but will damage the company in the long-term. Practically, this means they aren’t just thinking about surviving in the moment, family businesses think well in advance about how to thrive after a recession or economic shock.

It’s typically this strategic leadership that sets the tone for family businesses ‘bouncing back’ quickly in situations when other businesses lag. A family business is adept at bunkering down to weather a storm, while maintaining the tools it needs to thrive in the long-term. The result is often a very different approach to decision-making.

Driven by values

While values may seem like secondary priorities in a recession or in volatile economies, they also form part of the reason family businesses both survive – and thrive.

A family has typically worked hard to define their principles and understand how they apply to the way they operate. Sometimes defining these values is part of family governance, other times it is a more strategic push to help the family find common values that can be shared between generations. For other family businesses, values aren’t official but are instead deeply ingrained and simply passed through the family in an informal way.

Most businesses that completely abandon their values in the wake of economic turmoil often find later that it was a damaging misstep. Family businesses, however, tend to double down on honouring their values, rather than turning away from them. While prioritising values can seem trivial while facing something like a recession, few consumers forget the businesses that support their employees well, or continue to honour their CSR or ESG commitments, even in times of hardship. Family businesses also have a unique understanding of how reputation can affect everything from public perception to share prices. Standing by values is also key because broken trust and poor reputation can ultimately damage profitability in the short, medium and long-term.

Active wealth: ZEDRA’s solution for family businesses

ZEDRA’s team of experts is ideally placed to support family businesses of all sizes with a full portfolio of services covering family business management, private wealth protection and fiduciary investment services. We offer these services as part of our unique Active Wealth offering.

Our team around the globe works with high net worth individuals, families, entrepreneurs and relevant advisors to provide them with the guidance, solutions and services needed to manage family businesses and wealth successfully and strategically.