The month is June, the windows in the car are rolled down, and “School’s Out” by Alice Cooper is playing. Summer of 2025 is here, and it should be a hot one. Outside, of course, but what about the U.S. economy? In 2025, the S&P 500 is up roughly 1% to date, recovering from what was a 15% year-to-date decrease in early April.

Ed Frankl, in a recent Wall Street Journal article, discusses the continued decline in U.S. manufacturing activity, which has hit its lowest level since November. Excluding the pandemic period, new export orders were at their lowest reading since 2009. The survey’s measure of imports sank sharply for a second straight month.

The uncertain macroeconomic environment is prompting corporate managers to consider how a recession would influence their businesses

The uncertain macroeconomic environment is prompting corporate managers to consider how a recession would influence their businesses. So, now is a good time to highlight this theme and for family business directors to consider the same.

Your family business doesn’t receive a daily grade from the market, but you do have expectations for the future. How will your family business fare if a recession sets in, and how are expectations affecting the value of your family business today? When discussing value, we find it helpful to group expectations into three primary categories: cash flow, risk and return, and growth.

Cash Flow

Value is not a “what have you done for me lately?” game — it is a “what will you do for me tomorrow?” game.

What effect will rising prices have on demand for your product or service? Are your customers net beneficiaries of rising price levels, or will rising prices put a dent in their propensity to spend on your product?

How are labor availability and wage pressures influencing the cost of doing business for you? Are you able to pass higher operating costs along in the form of higher prices, or are your profit margins getting squeezed?

Is the increasing cost of capital goods reducing cash flow that would otherwise be available for debt service or owner distributions?

Risk & Return

Thinking about your family business specifically, how have expectations regarding risk evolved as the economic picture becomes murkier? Do you have a compelling case that your family business really is recession-proof? Or would investors be skeptical of the strategies at your disposal to navigate through a broader economic slowdown?

Growth

How would a prolonged recession change the ground rules for your industry and the effectiveness of your family business’s growth strategy? Would a downturn cause you to defer capital investment in support of the next growth engine for your family business? Or would a slowdown allow you to capture market share at the expense of financially weaker competitors? How could the structural changes that accompany economic disruptions alter the demand trajectory for your product or service?

How would a prolonged recession change the ground rules for your industry and the effectiveness of your family business’s growth strategy?

In another Wall Street Journal article, Connor Hart writes that Costco has been actively taking steps to reduce its exposure to tariffs by pulling orders forward and moving more production and sourcing to other countries in order to maximize growth potential. As consumers continue to be very mindful when making discretionary purchases, businesses need to be wary that their products or services could potentially be forgotten or replaced by a cheaper alternative.

Conclusion

Being as prepared as you can be for a potential recession is one of the many responsibilities of family business directors. Using cash flows, risk and return, and growth should provide a helpful framework for evaluating expectations for your family business in these uncertain times.