Reading into and best preparing for the future
Many economic indicators are flashing red. Virtually all economic forecasts predict an economic recession for the EU and US economy next year. It is within this context that many companies are now planning and preparing their annual financial budgets, at a time of high uncertainty. Budgeting-as-usual will very likely not be enough this time round, whereby budgets are prepared with a change here and there and then we hope for the best.
Most family businesses see danger too late. This is because they report financials and KPIs in an untimely fashion. This leads to a lot of post-mortems and few possibilities to act in time. Another reason is that many family businesses report on their incoming statements, hence tracking revenues and costs but not cashflow or balance sheet items. These factors are all tied together and need constant, updated and frequent visibility. It is only that way that family businesses stand a chance at spotting slowing orders, growing inventory or delayed payments from debtors.
When times are tough cash is king. That cannot be anymore true as interest rates rise. Therefore, defending your working capital becomes even more important. This means that projects to improve cash generation include things like changing how you manage payables and receivables, reducing inventory and speeding distribution, should be given top priority.
Reducing costs or turning costs from being fixed to variable will help the business survive better whatever happens ahead. Therefore you need to get specific about how much will be saved by when and by whom and then actively monitor progress. By outsourcing assets or processes, you can turn fixed costs into variable ones, which allows you to gain the flexibility you need in uncertain times.
Family businesses need to learn how not to extrapolate from year to year on an overall basis but need to observe the bigger picture. The economic volatility that was brought about as a result of Covid was a one in a lifetime experience. Possibly , here in Malta it was felt to a lesser degree than in other countries due the healthy economic position Malta was in pre Covid.
Family businesses need an active and detailed view of different costs and revenues and the drivers behind them. What is driving value in the family business and where is value being destroyed? Knowing this is a powerful capability that can reveal opportunities for structural change and workload reduction and which efforts to boost and others to stop during an economic downturn.
(All factual and statistical information presented in this blog has been obtained from an extract of a blog from silvansbusinessinsights.com ) Follow us on our Facebook page and Family Business Office website at www.familybusiness.org.mt
At the Family Business Office we can offer you assistance in dealing with family business succession planning issues through incentives supporting advisory and mediation services. Contact us today on firstname.lastname@example.org.