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6 dreadful financial challenges family business owners can face

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Family business owners are always navigating uncertainty, but the current environment is very difficult to navigate. The owner is facing his highest inflation since 1981. The Federal Reserve (Fed) is sharply raising interest rates to stop wages and prices from spiraling. But most economists think it could still trigger a recession this year. All of this is happening as employment continues to be difficult and twisted supply chains are further hampering business operations.

Wow! Faced with these adversities, how can business owners meet these challenges? At the recent employee-owned S Corporations of America (ESCA) conference, executives from the nation’s largest ESOP companies shared their views. Here are the six business advantages they communicated:

1. Rising interest rates are the biggest challenge in the short term. The Chief Financial Officer should focus on managing working capital and ensuring the health of the company’s balance sheet. Extending maturities to remove short-term funding pressure and hedging exposure to floating rates through swaps or term facilities is a smart move.

2. A potential recession is the next most pressing issue, with business leaders worried that the steps they have taken after the first wave of COVID-19 in early 2020 will not dress the measures they are considering. I said I proved rehearsal. Earnings. Ranking your most important initiatives can help you identify where to cut without jeopardizing critical functionality. Reach out to lenders proactively and briefly explain the steps you are taking. Lenders appreciate this and goodwill lays a foundation if they need to be approached for forgiveness or modification of the loan.

3. In the long term, inflation is the biggest concern. As management consultant Ram Charon sees it, business his leader has lost the muscle memory of dealing with price spikes, which he hasn’t faced in nearly 40 years, and may be difficult to corral. . Year. Operating in an environment of rising costs makes it important to manage working capital, including prudent product pricing, controlling costs through prudent purchasing, and keeping receivables as low as possible. As Charon points out, CEOs should work to ensure that finance, human resources, purchasing, marketing, and other critical functions respond to the challenge of inflation in a coordinated manner. You have to raise alarm bells internally about something.

4. Communicate with your employees about the impact of rising interest rates, inflation and economic recession on your business, as employee engagement is especially important in a stressful scenario like this. Communicate strategies for getting through difficult times. It is also a time to solicit suggestions from employees on enabling the economy and approaching customers.

5. When it comes to talent and the intense pressure to find and hire great staff, HR teams need to work with management to identify and retain top performers. And an opportunity to pursue strategic talent acquisition that until now has proven impossible and recognize that young talent seeks personal and professional development to advance their careers. maybe.

6. Successful CEOs convene executive “war councils” to demonstrate current urgency and gain perspective on issues impacting the business. there is. That way, they can avoid thinking about their particular silo and focus on the overall operation so the company can get through the tough times.

Directors and Advisors: Private sector leaders encouraged boards and advisors to seek their views. Ideally, the board is made up of directors with diverse skills and perspectives. There are people who have survived past recession cycles and past periods of inflation and rising interest rates and can share useful insights.

Strategic Planning: Participants believe it is essential to put aside their day-to-day duties and step back and focus on what they see as the future of their business. By completing the strategic planning exercise, you have thought through your business objectives, identified your key and secondary priorities, and identified current and future risks. During stressful times, you may want to hoard capital to support your most opportunistic initiatives and limit resources, or cut low-priority or high-risk projects altogether. If you haven’t completed such an exercise, doing so now will give you confidence in the actions you’re taking and limit the reflexive but short-sighted actions that damage your business.

M&A: Rising interest rates and a recession usually lead to lower transaction volumes. Also, transactions taken may be at lower multiples to discount current unfavorable business conditions and reflect a decline in public company comparables. That said, quality companies with strong financial statements and momentum can always find buyers. With all the economic headwinds, we find the sales process lengthened by the diligence of buyers and the uncertainty of sellers. Note: The good news in disruption is that companies with strong balance sheets are counter-cyclical buyers and will find value in offering previously unavailable opportunities.

Finally, if you haven’t done so already, develop a strategy for transitioning your business to protect your interests in the business or to meet your and your family’s objectives. Developing a thoughtful plan takes time. If you’ve never created one before, it’s a great time to start thinking strategically about maximizing the long-term value of the company you’ve worked so hard for.