The five crises facing GCC family businesses (page 4 of 4)

Therefore, family businesses must build on their knowledge and make market insight a true capability.

5. The economic crisis:

Finally, and most significantly, the economic crisis is catalyzing the most profound changes in their operations. The GCC has been spared the worst of the global recession, but it has still been affected—primarily through constrained credit, slower growth, and a lingering sense of uncertainty about the future. When family businesses were smaller and less connected to foreign economies, they were less affected by global economic dips. But they're now larger and more entwined in worldwide markets, and the recession is hitting them more emphatically.

Historically, these companies managed top-line growth well but didn't worry much about inefficiencies in their balance sheets or cash flow statements. "The highest priority was to grow their revenues and profits fast enough to keep up with surges in demand. They financed their growth with short-term debt and managed cash loosely," explained Youssef. Due to the downturn, many companies, despite the long-term health of their business, are finding themselves in a short-term cash trap. The recent public turmoil involving some of the region's prominent family businesses could further exacerbate the problem. Financial institutions might put those businesses under pressure to pay their short-term loans, forcing them to make drastic moves to secure cash immediately—a phenomenon that could have a ripple effect on the credit market.

To survive the economic crisis and ensure a stronger position when it is over, many family businesses need to improve their working capital, improve their capital structure, and focus management incentives on cash flow indicators. At the same time, they should consider deferring investments, selling non-core assets, and suspending or reducing dividends. In short, they need to ensure that the CFO and the finance function use their expertise to play a key role in shaping strategy and generating value for the business, rather than just counting the money.

Staying Solvent in a Tough Environment

"The global business community as a whole is facing unprecedented challenges, and it is an especially precarious time for GCC family-owned businesses," Youssef said. During previous decades, these problems were mitigated by the region's strong, steady growth. Now however, problems that bubbled under the surface when times were good can no longer be ignored. Only by dealing with these five crises, both separately and together, will managers be able to navigate the storm and create a more competitive business when times are better.