Recession or not, family businesses benefit from these strategic and tactical tips

The U.S. economy shrank for the second consecutive quarter in July signaling the onset of a technical recession as defined by The National Bureau of Economic Research (NBER). According to the Commerce Department, Gross Domestic Product (GDP) shrank by 0.9% on an annualized basis last quarter. This is the largest decline since the spring of 2020 when the country was in the midst of the pandemic. The slowdown is being driven by higher interest rates, raging inflation, declines in private inventories and reduced government spending.

Typically, recessions are also accompanied by high unemployment, reduced consumer spending and reduced exports. To date, some of these other economic drivers have not manifested, leading some economists to suggest that the U.S. is not officially in a recession.

Regardless of the technical definition and determination of a recession, many family-owned businesses feel like a recession has started already, due to rising material and energy costs, continued labor shortages coupled with wage increases, higher transportation costs and interest rates, decreasing demand and shrinking margins.

Companies in an inflationary environment heading towards a recession should consider a combination of internally focused cost cutting and operating improvement measures, as well as market and customer facing strategic measures.

Reduce operating costs to maintain profit margins

To maintain or even improve margins, companies must begin to measure and then reduce the cost of inefficient operations. Making an organization leaner by reducing waste and improving process efficiency is a must regardless of economic conditions.

Understanding costs at a product and customer level is critical. Having this visibility end to end allows for addressing issues that erode profit margins—rather than raising prices.

Evaluate supply chain risk to reduce costs

To date, the pandemic continues to disrupt some supply chains. Coupled with current economic conditions and volatile world relations, a business can be crippled by these supply chain factors seemingly overnight. A critical evaluation of supply chain risk can help a business proactively prepare or repair a vulnerable supply chain. 

Frequent areas of vulnerabilities include the following.

• Dependence on very few or only one supplier