The COVID-19 pandemic struck a blow to businesses of all sizes and in disproportionate ways. But family businesses softened – and shined through – the economic crisis that emerged.

While 81% of family businesses suffered economic losses during the pandemic, 60% had no change in jobs and were able to keep all employees, while 69% supported employees with paid leave and benefits, according to data collected in 2021 by Washington, DC-based Family Enterprise USA (FEUSA), which represents family businesses on a national level. During the pandemic, 53% of family businesses used government assistance, most in the form of Paycheck Protection Plan Loans, to sustain the business.

Patricia Soldano, president of FEUSA, which provided the primary funding for research project on the overall economic impact of family owned businesses, said, “With the uncertainty and disruptions caused by the Coronavirus pandemic of the last year, these privately owned businesses have demonstrated remarkable resilience and flexibility to continue to thrive and protect their employees amidst the economic hardships of this moment.”

Culture counts

Martha Sullivan, a consultant with The Family Business Consulting Group (FBCG), Waunakee, Wis., noted that where family businesses were able to shine during the pandemic is through their business culture. Family businesses that have built a culture of caring and the sense of “family” beyond the core family. The belief that, as colleagues, “we’re all one big family working together”, she said.

“I think that really had a favorable influence on family businesses to be able to adjust in ways that they needed to and be more mindful and more caring of their customers as well as their employees as we were navigating particularly the, the initial ‘scaries,’” Sullivan said.

That culture of caring included, for example, some companies’ policies around HR and working from home and flexible work schedules, she said.

“Those that had a more agile and flexible approach probably didn’t see the same degree of attrition and labor force leakage,” Sullivan added, “and that we all know that labor is a critical issue. So, those more caring families may have retained better or had employees, especially if it was a business that was in a surge, like the food industry, right? The demand for food and demand for meat processing went off the charts.

“And in some instances, you saw in the industry repercussions of those families that maybe weren’t very caring and how that impacted their workforce or their attrition in that workforce where people have just said, heck with it. I’m outta here.”

Family firms also suffered as the pandemic revealed divergent attitudes and perspectives where before, stakeholders may not have realized that polar-opposite attitudes existed within the family especially in terms of how individuals interpreted the risks associated with COVID. For example, a decision around wearing masks could have been easy for one family, but not the case for other families.

“It really drove a wedge in those families,” Sullivan said.

Another significant factor determining how a family enterprise fared through the difficult phases of the pandemic was whether the family enterprise had the communication systems or other processes in place to help them navigate those deceptively simple decisions and to find a way back to the place of alignment.

“Maybe not agreement, necessarily, but at least alignment that okay, we have a fair process, and I can see where and how this decision was made and I can recommend it,” Sullivan said.

Source: ©NATEE MEEPIAN– STOCK.ADOBE.COM

 

Moving forward

The pandemic continues – as of March 1, 2023, COVID-19 cases in the United States totaled 103,268,408, according to the Atlanta-based Centers for Disease Control and Prevention. Economic challenges are ongoing. The Congressional Budget Office (CBO), in its Economic Outlook for 2023 to 2033 report, projects economic output (gross domestic product, or GDP) to stop growing early in 2023 in response to the sharp rise in interest rates in 2022. CBO said inflation was higher in 2021 and 2022 compared to the previous four decades: 5.7% and 5.5%, respectively, as measured by the price index for personal consumption expenditures. And political polarization is not subsiding any time soon. But even with these and other challenges, opportunities remain for family enterprises to survive and thrive with leadership armed with critical problem solving skills and good advisors.

FBCG’s Sullivan named three trends she and others who follow the family business space are watching. The first is the financial acumen of the family members, shareholders and management. It will be up to company leaders to ensure a company’s financial position is strong and bolstered by good advisors especially in the current inflationary environment.

The leading generation most likely recalls the inflationary times of the late ‘70s and early ‘80s. “Beyond that, everyone else has grown up in an environment of, by and large, Shangri-la,” Sullivan said. “They’ve never seen this type of inflation. Never.

“So I think that is a really important challenge and opportunity for those businesses to really adapt to life in an inflationary environment, and to knowing what levers to pull in their operations and their financials so they don’t get in trouble with, debt covenants, or cash flow or things of that nature; because what we have seen even already is with the rising interest rates in the inflation, some banks, if they have done covenants, the bank is saying, “not so fast on those distributions to shareholders” — that could be a real shock to family members that have relied on those distributions.”

This is especially true of stakeholders that are not involved in daily operations. Some financial decisions made to secure the business can present a threat to family harmony, for example, because a family member who also happens to have a spouse that is also a shareholder, may not understand what’s going on with the company financially.

“They start to get suspicious,” Sullivan said. “So, the financial systems, the financial transparency, information sharing and education if it’s appropriate, are really, really good strategies for folks to consider and put into place.”

Second thoughts

Another trend Sullivan noted is that the leading generation wants out of the business sooner rather than later.

“I’ve been a certified exit planner now for a number of years,” she said, “and even back in the teens, the 20-teens, there was discussion about this big ‘silver tsunami’ coming through business ownership, and all the baby boomers when they hit 65 were miraculously going to say, I’m out and want to sell.

“That didn’t happen because once people got beyond the Great Recession of 2008 and bounced back from that they’re sitting pretty, happy and sassy with the business and they were having fun with it; and it was growing, and life was relatively good until the pandemic.”

Now, with painful input cost increases, painful labor cost increases, labor shortages and other business ‘headaches,’ the silver tsunami is in full swing.

“They want out now,” Sullivan said. “They’re tired; they’re fed up, and maybe perhaps just concerned about what that whole pandemic and all of the economic chaos that unleashed had done to the family as well.

“I think a lot of business owners pre pandemic were like, yeah, I’m 60, I’m 65, but you know what? I’m still having fun. I can keep doing this. I could do this until I’m 70. Well, the pandemic, maybe whether they got COVID or they didn’t get COVID, it’s drained the gas tank; they don’t have the energy. It’s not fun anymore, and the pandemic also, I think, was a two-by-four up against everybody’s head at how precious life is and how quickly things can change. So, that is a real, real serious issue on succession planning.”

Also, there’s no guarantee that the next generation will want to take the reins.

“They’re saying: ‘I’ve watched you, Mom and Dad, bust your tail for all these years, and I’ve seen the sacrifices you made in your life. I’m not doing it,” Sullivan said. “Or, ‘If I’m going to do it, it’s going to be on my terms.’”

Supply chain pivots

Finally, the pandemic spurred many family-owned businesses to revamp their supply chain systems to include having backup vendors or safety stock. They also are asking questions about strategy such as whether to go ‘just in time’ or build a cushion into company systems and forecasting to mitigate exposure to risk in the event of a blip in supply chain flows.

Small businesses in general helped soften the economic blow of COVID-19, and they may have helped the economy innovate and adapt to challenging conditions like soaring prices and supply chain issues, the Small Business Administration Office of Advocacy said in an isssue brief titled “Business Dynamics During COVID-19.” Sullivan concurs that family businesses also performed just as well, if not better, than non-family owned peers.

“I really do think that these small businesses were able to soften the economic impact because they were more agile, because they were more willing to accommodate and be flexible and be creative in how they did some of their problem solving,” she said. “I think what family business has over the larger corporate environments is they have the grace and the ability to think with long-term thinking as opposed to merely short-term thinking.”