• Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 12/17/2013

How do family businesses deal with an economic downturn? 

Economic downturn
The global financial crisis has had an enormous impact on economies worldwide, with stock markets falling, financial institutions closing, increasing debt levels, and governments forced to intervene and consider serious regulatory reform. A developing country in need of growth, South Africa has not escaped unscathed.

There was a sharp decline in demand for export products, a fall in commodity prices, a pull-back in foreign investment, and enormous job losses across the board. Family-owned businesses have had to face these same issues during this time.

It might be said that their situation is even more precarious considering that many small businesses don’t have large savings which to draw from, or valuable assets to sell off to try to ensure wealth preservation and longevity.

Impact on economies

And yet small businesses have continued to survive, demonstrating the resilience and flexibility necessary to make it through massive financial upheavals and the resultant reductions in consumer spending. In a piece discussing why South Africa needs more family businesses, Gareth Ackerman of Pick ‘n Pay says:

“Throughout the world, family-owned and controlled businesses – and the values they represent – continue to play an important role in the development of economies. About 80% of the world’s businesses are family owned. In the US, they form the backbone of the economy.

About 35% of Fortune 500 companies are family controlled, while family businesses account for 50% of US gross domestic product. They generate 60% of the country’s employment, 78% of all new job creation and 65% of all wages paid. South Africa needs more family-owned businesses, not fewer.

Family control allows companies the space for innovation, risk-taking and entrepreneurship, which is not always available to institutional investors driven by the need for immediate returns.”

Family businesses are essential to a country’s success

Those businesses that continue to survive (and sometimes even prosper) in these pressing times have in part, done so by managing their advertising spend carefully and offering special discounts. Advertising shouldn’t stop just because purse strings are tighter.

Rather, savvy business owners focus ‘ad spend’ on areas where they are more likely to get results or try a new campaign that targets an untapped or emerging target market. Offering specials or affordable discounts to loyal customers or rewarding long-standing clients goes a long way to ensuring customer loyalty and increasing word-of-mouth recommendations.

When business is slow, smart business owners continue to network and re-double their sales efforts to ensure continued exposure and make new sales, rather than just depending on existing customers.

Family business survival tactics

Avoiding unnecessary spending and investing profits back into the business often helps businesses to keep trading through tough times and prepare for growth in the future. Keeping cash flow positive by invoicing up front (especially important when dealing with new clients) and collecting payments on a regular basis is also vital.

Strict book keeping is essential when other businesses are struggling to pay invoices. Keeping flexibility top of mind is also important – in difficult times, smaller family businesses can use their size to their advantage and adapt to their surroundings, quickly responding to changes in demand from customers.

Values and principles of family-run enterprises

Finally, the values and principles that started a family business are often what keep it going in the tough times. Says Gareth Ackerman:

“My father established Pick n Pay in the belief that family control was the only way in which we could ensure the maintenance of the values and principles that have informed our commercial conduct since 1967.

For 45 years, we have sought to protect and promote these values in a business environment where ethical behaviour has not always been the dominant practice. It is a source of great pride to me that we remain invested in Pick n Pay.”

The demise of the family-run, high-trust enterprise

“I believe it is the demise of the family-run, high-trust enterprise, in which faces and names could be attached to a business brand, which accounts for much of the concern about modern business ethics.

For we have replaced the intimacy and accountability of the family business with huge multinational corporate structures in which the welfare and needs of the customer have come to play second fiddle to image management, faceless governance and sustained profit-making at all costs.”

Do you agree that the intimacy and accountability of the family business are what keeps customers coming back even in an economic downturn?

Craig Steven-Jennings

Craig Steven-Jennings
After working with family businesses in various industries for 12 years and with the understanding of key drivers such as growth, risk and ownership control, I am delighted to share my experiences and knowledge with you.

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