Back in the spring of this year, we discussed five broad economic indicators family businesses needed to keep their eye on. In this week’s post, we wanted to revisit those trends and see where we have come over the last four months, as well as what we are hearing from our clients on the ground.
History, Valuation & the Future
We’ve covered the pandemic’s affect on the operating, investing, and financing decisions made by public companies in our last three posts. This week, we conclude by examining shareholder returns.
Benchmarking Cash Flow From Financing Activities
In the first two parts of this series, we analyzed the operating performance and investing decisions of the companies in our benchmarking universe. This week, we examine the financing decisions of those companies and apply those observations to family businesses.
Benchmarking Cash Flow From Investing Activities
Continuing our benchmarking analysis, we turn our attention this week to how companies made investment decisions in 2020.
Benchmarking Cash Flow From Operations
Here at Family Business Director, we believe in the power of benchmarking for family businesses. Done well, benchmarking provides managers and directors with valuable insight and context for evaluating the operating performance of the family business and the strategic investing and financing decisions made by the directors.
For the 2021 edition of Mercer Capital’s “Benchmarking Guide for Family Business Directors,” we have drawn data from the SEC filings of revenue-generating companies in the Russell 3000 index (excluding financial institutions, real estate companies, and utilities). From that data, the Benchmarking Guide focuses on four metrics: 1) the components of cash flow from operations, 2) investing activity, 3) financing decisions, and 4) market performance and shareholder returns.
This first post of four addresses the first metric: The components of cash flow from operations. The benchmarking data raises some critical questions for family business directors as the U.S. economy continues on the path to recovery.
Last week, we introduced a series of posts about taking a strategic inventory of the assets of your family business. As the calendar turns to December and 2020 (thankfully!) comes to an end, it is an appropriate time for family business directors and managers to take stock of just where their family business is at this stage in the pandemic. Doing so can help give needed context to discussions about where the family business should be headed.
We tend to think of a family business’s primary assets under seven broad headings. In this week’s post, we offer a checklist for directors and managers.
Family directors have rightly been focused on keeping their people safe and healthy, and taking the steps necessary to help their businesses survive the pandemic. It will eventually be time to look ahead, however. When that time comes for your family business, what will you be thinking about?
One thing in short supply thus far in the pandemic has been perspective. We know that GDP fell by more than 30% during the second quarter, but how does that translate into the actual financial performance of businesses? Family business directors have been flying blind over the past few months, with no reliable way to benchmark the performance of their businesses.
Earnings season for the second quarter of 2020 gives us the first opportunity to see how the COVID-19 pandemic is affecting businesses. In this post, we elaborate on four themes that emerge from the data.
Depressed Market Values Provide an Opportunity for Tax-Efficient Transfers of Family Wealth for Estate Planning Purposes
The economic effects of the COVID-19 pandemic are dire, and family businesses are not immune to the economic fallout from the virus. Yet we are confident that family businesses are best positioned to survive and lead in the post-pandemic economic recovery.
For family shareholders who are optimistic about the resilience of their family businesses and focused on the long view, this is an ideal time to execute intrafamily transfers in pursuit of estate planning objectives.
Amid a Global Pandemic, It's Easy to Lose Track of Some Big Things That are Going On
In this week’s post, we have assembled some helpful resources we have come across that provide helpful insight on the estate planning opportunities and strategies available to family business owners during 2020.
Accumulating real estate seems to be a natural strategy for many family business owners. After all, real estate is generally assumed to be less risky than the operating business of the family. Further, so long as the properties have a reasonable range of alternative future uses, the returns to the real estate portfolio often have a low correlation to the returns from the operating business. However, the market data we review in this week’s posts suggests that these assumptions may not hold as well in a pandemic.
While it may be difficult to think past the day-to-day of operating in the current environment, acquisition opportunities are likely to be on the horizon over the next few years, most likely at attractive valuations for acquirers.
Family businesses devote time and resources to creating forecasts and budgets to guide resource allocation and strategy decisions. Yet, the forecasts and budgets for 2020 that many family businesses spent months creating are now worthless. So managers and directors face the task of revising and updating those forecasts amid a uniquely uncertain environment that the pandemic has caused. In this post, we provide some ideas of how to “loosen up” forecasting models to make them more useful.
Estate Planning Opportunities Abound as a Result of Low Valuations and Low Interest Rates
As family business leaders tackle the many operating challenges thrust upon them by the COVID-19 pandemic, it is tempting to let tasks like estate planning fall to the bottom of the to-do list. While estate planning may appear to be less pressing than other issues, the positive impact of effective planning on the long-term health of both the family and the family business is hard to overstate. If you are confident in the long-term resilience of your family business, you should not miss the current opportunity for tax-efficient estate planning activity.
Over the past several weeks, we have seen a lot of great content from folks we respect and admire on leading a family business through turbulence, and thought that we would compile a sampling for the benefit of our readers this week.
We are not economic forecasters, so we are not attempting to make any predictions about the coronavirus or its economic effects. However, in an effort to provide some context for ourselves, this week we decided to go back and examine some data from the Great Recession.
As family business leaders continue to make hard decisions in real-time against the ever-changing backdrop of the pandemic, their legal and tax advisors would do well to consider whether this is an opportune time for intra-family ownership transfers. For many family businesses, the current economic uncertainty presents a unique, and perhaps fleeting, opportunity for more tax-efficient estate planning.
The official end of the bull market for public stocks signals that Coronavirus-induced disruptions to the global economy are real and are expected to persist. The stock market tends to be the best leading economic indicator, so family business directors would do well to think about how best to position their businesses to weather the slowdown.