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Are family businesses better prepared to survive during economic turmoil, asks ZEDRA?

Contributed by ZEDRA
16 April, 2020

You only have to look at the number of family businesses that survive two or more generations to know that something about this model is intrinsically right, thinks global specialist in Active Wealth, Corporate and Fund Solutions, ZEDRA.

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

Optimised profitability ratios

Family business management is a byword for running a tight ship, when it comes to spending and 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 and understand the importance of strategies to preserve capital. This is a distinct advantage at all times, but particularly in challenging economic landscapes,' says Colin Borman, Director and Head of Private Clients at ZEDRA.

The trend towards low spending is typically explained by the fact that the family itself is footing the bill for 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 are thinking in different timeframes, compared to those of an average company.

'Faced with a recession or turbulent markets, most non family 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 in play. A family business cannot afford to make a decision which might benefit the business in the short-term but probably will damage the company in the long-term. Practically, this means they are not just thinking about surviving in the moment, family businesses think well in advance about how to thrive after a recession or economic shock,' explains Colin.

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 hunkering 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 are not official, but are instead deeply ingrained and 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 mistake. 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 promises and poor reputation can ultimately damage profitability in the short, medium and long-term,' says Colin.

Whilst the family might be expert in the industry in which they operate, ensuring the future of the business and the smooth running of the family unit often needs outside help when it comes to the legal, financial and succession planning aspects of a business. To meet this need, ZEDRA has developed a concept it calls "Active Wealth".

Active Wealth is ZEDRA solution to the challenge of managing private family wealth. It provides an umbrella under which families can deploy and manage their wealth in more dynamic and personalised ways, covering family business management, private wealth protection and fiduciary investment services.

Based in 14 countries, ZEDRA's 550 staff work with high-net-worth individuals, families, entrepreneurs and expert advisors to provide the guidance, solutions and services needed to manage family businesses and wealth, successfully and strategically.


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