assessing risk|realizing opportunities

Mom and Pop Go Chapter 11

american-gothic-large4The Wall Street Journal ran an interesting article about the devastating effect the recession is having on family owned businesses.  The SBA estimates  90% of U.S. businesses are family-owned.  During 2008 about 4.3 million businesses with 19 or fewer employees closed according to the Bureau of Labor Statistics. If 90% of those firms were family controlled businesses more then 3.8 million families have lost their livelihoods and most likely have also lost a considerable amount of personal wealth.  This drastic dissipation of  wealth and family control of assets  is yet another blow to the middle class.  Its impact of entrepreneurial activity and capital formation initiatives may create additional headwinds for the economy seeking to overcome the deep recession.

John Ward a professor at Northwestern University observed “that the economic downturn is really just the latest setback for family-run businesses. In the 1970s and ’80s, exorbitant income taxes and estate taxes forced many to close.  Before that, the anti-establishment movement during and after the Vietnam War made many children reluctant to take over the family business.”

Beth Wood, a family business market development specialist  at MassMutual observes that family businesses are “often steeped in tradition and not as flexible to change, tend not to have formal plans in place to respond to crisis.  They’ve seen reductions in top line revenue that they just can’t react fast enough to. Problems securing credit in this recession have also prevented some family businesses from getting the funding they need.”

Ms. Wood makes an interesting observation about the importance of business agility.  The need to assess the rapidly changing market dynamics is a critical exercise that SMEs must undertake.  Business as usual will not get it done.  SMEs  must begin to transform itself to better align its business model to rapidly changing markets.  Conducting a thorough risk assessment and opportunity discovery exercise is critical  to creating a sustainable business enterprise.  Sum2’s Profit|Optimizer is a critical tool that helps SME managers assess risks, spot opportunities and initiate actions to achieve business growth and profitability.

Family owned enterprises must overcome the gravity of generational business cultures that inhibit and resist change.  SMEs will survive and thrive if they can identify emerging opportunities the current business cycle is creating.  SME’s will survive and thrive if they have the will, resourcefulness and a supportive culture to change.  These are the qualities required for long term sustainability and growth.  Business as usual is giving way to a “New Normal,” where adaptability to structural market changes are keys to asset preservation and wealth creation.

You Tube Video: Willie Nelson, On the Road Again

Risk: family trusts, asset preservation, small business, bankruptcy

October 6, 2009 - Posted by | bankruptsy, business, credit, economics, product, risk management, SME, Sum2, sustainability | , , , , , , , , , , , , , , , , , , , , , , ,


  1. I agree with the premise of the article, but would expand on it a little. The typical small business owner may not have expected a recession as severe as this one. Expecting a quicker rebound as has happened in the past mayu have led some to inaction. Once recognizing the situation, the lack of capital or the availability to credit may have hampered their ability or react.

    These stories tend to be underreported as the big job losses and collapses garner all the attention, even though overall, the economic impact may be just as significant.

    Comment by Tony Carey | October 7, 2009 | Reply

    • Tony,

      You raise an important point. Many small business managers were unprepared for the severity of the recessions impact. Many of our recent clients have expressed the same idea. They were confident in their ability to manage through the difficult business cycle and believed that their business plan and entrepreneurial drive would be enough to get through the adversity and achieve their business goals. These “blinders” often impede small business managers and owners from taking an objective look at their business. This is what Ms. Woods was alluding to in the post. Small businesses need to assess the risks and opportunities present in the market and be agile enough to make the changes needed to adapt to the new business landscape. That is what our product the Profit|Optimizer is all about.

      The “New Normal” is very different from the business landscape of the past. The availability of inexpensive credit is choking capital starved small businesses while the recession has severely hampered small business revenue. Banks and other credit providers are highly risk adverse and need to be assured that businesses can repay loans with demonstrative cash flows. We have seen that lack of liquidity and concentration of risk factors are the principal drivers of small business closures. Effective small business managers must be astute and vigilant risk managers to survive and thrive during this severe business down turn.

      Please feel free to download our macroeconomic risk assessment. It has proved to be a helpful tool for many business managers to assess and manage macroeconomic risks confronting their business.

      Go here to download the template

      We welcome an opportunity to be of service to you.

      We wish you success during these trying times.

      Thanks for you comments.

      Comment by riskrapper | October 7, 2009 | Reply

  2. […] is believed that 14% of SMEs are in distress and without expanded access to credit, defaults and  bankruptcies will continue to rise.  Massive business failures by SMEs shrinks market opportunities for banks […]

    Pingback by The Profitability of Patriotism: SME Lending « sum2llc | December 16, 2009 | Reply

  3. […] is believed that 14% of SMEs are in distress and without expanded access to credit, defaults and  bankruptcies will continue to rise.  Massive business failures by SMEs shrinks market opportunities for banks […]

    Pingback by The Profitability of Patriotism: SME Lending « Risk Rap | December 16, 2009 | Reply

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