Economists and experts of different institutions and regions around the world anticipate a global recession toward 2019 or 2020 – most possibly a gradual slowdown toward the end of 2019 and a recession in 2020.
In the case of a recession, how can family enterprises prepare – and even more so, turn it to their advantage?
Below are three suggestions that could lead to rich discussions among active leaders in your family, as you prepare for 2019-2020 and look to the next 5 years:
- Conduct the exercise of reviewing your financial performance of the past 15 years to see how much gross and net value you have created over this time period, and how you performed around the past two recessions: Were you hit by the recession ahead of it? In the middle of it? Or after it more or less ended? How impactful was it for you? A low seismic effect? Major effect? Different industries react differently to economic cycles. Know your growth curve. Know where you performed well, and where you tended to destroy value. This can help you proactively make consolidation decisions ahead of the recession.
- Take your financial risk pulse as a family and confirm what you value as owners of assets. Do you typically grow strong balance sheets as a family? Or try to constantly leverage your free cash flow*? What will make you more financially vulnerable if a recession hits? What will turn into opportunities to acquire other companies deprived of a good succession plan and suffering low performance?
- Plan to keep your top talent busy. During periods of uncertainty and possibly slowdowns, make sure to motivate your current and rising top talent. It might be time to start a long-term value creation initiative to keep everyone busy and engaged, and harvest the benefits of such initiative in the mid-term.
*Free cash flow is a measure of the cash available after a company pays for all its operating expenses and capital expenditures.
Pascale Michaud is an advisor to family enterprises throughout the world on strategies and governance models for their successful continuity. She advises multigenerational family enterprises on issues of corporate growth, business strategy and governance, innovation management, digital preparedness, leadership transitions, next-generation development, family governance, and family and corporate philanthropy.