It pays to plan for the worst

By Barbara Spector

As I write this, rumblings of an impending recession are getting louder. In January, Deloitte released a survey of 147 corporate chief financial officers that found 55% expected a U.S. recession by the end of 2020. The CFOs’ optimism about their own companies’ prospects dropped to the lowest level in nearly three years, according to Deloitte’s CFO Signals report. The finance chiefs predicted lower business spending and higher labor costs.

With a new Congress in session, fallout from a government shutdown and candidates announcing plans to run for president in 2020, political uncertainty is also a factor to be reckoned with.

The United States has enjoyed a long period of economic growth. Now we may be heading into rough times. In your strategic planning sessions, are you discussing what-if scenarios? This may be a good time to consider diversifying, curtailing growth plans or reducing inefficiencies. Think about what you can do to reduce debt. On the other hand, if your business is a strong competitor, you might want to brainstorm about acquiring a weaker player in your marketplace.

Over the past year, corporate governance experts have criticized public companies’ emphasis on short-term results. Family businesses’ focus on investing for the long term is now being promoted as a model for public corporations to emulate. But family shareholders, who in good times are optimistic about sustaining the company for future generations to own, tend to view their investment more skeptically in a downturn.

Family members who rely on their dividend checks might be anxious about the prospect of lower profits. Their fear could manifest itself as mistrust of the business leader or the board. In the worst cases, family meetings can devolve into a blame game or shouting match. Relatives who need cash might start complaining loudly about the illiquidity of their investment in the family firm.

What can your family do to prevent family volatility from compounding the challenges of economic volatility? Here are two suggestions:

1. Beef up your family education efforts. Ask your financial adviser to lead a family education session on economic life cycles so everyone understands the situation. Investigate how your adviser could help family members with personal financial planning and risk mitigation. Enlist executives from the family company to explain the business strategy at a family meeting.

2. Focus on shared family values. Review the family’s history of surviving tough economic times and emerging stronger. Declare your commitment to each individual family member and emphasize the need for the whole family to pull together. Review your family code of conduct (or create one, if you don’t already have it) and explain the importance of level-headed decision making.

Smart business leaders recognize the importance of preparing their companies ahead of time to face a downturn. It’s just as important to institute a plan to prepare your family for the challenges of a recession.

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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March/April 2019

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