Düsseldorf At first, the shock at the bicycle manufacturer Prophete was great. “When the shops were closed, we initially lost so much sales in the beginning of the high season that we were very worried that we would not be able to catch up,” says managing partner Severine Lönne, recalling the first lockdown in spring.
Indeed, the timing could not have been worse. In March and April in particular, the specialty stores usually start. For this reason, the bicycle manufacturers’ liquidity planning is designed to ensure that sales also come.
But Prophete had the advantage that the family business generates a large part of its sales through food retailers and hardware stores, which remained open all the time. “Our strategy of two pillars has proven itself in the crisis,” she emphasizes.
Your company got through the first corona wave much more lightly than many other companies. According to a survey by the “Die Familienunternehmen” association, every second family company was faced with the threat of bankruptcy in April. Only 22 percent of the 1260 companies surveyed stated that their liquidity would last for one year under the circumstances at the time.
In such a crisis, being a family business is both an advantage and a disadvantage, says entrepreneur Lönne. “Of course, you ask the question of existence much faster than a large corporation.” For her, it is very important that the family agrees. “That gives me backing for difficult decisions,” she says.
In order to ensure the existence of the company, she ran through various, even very pessimistic, scenarios in order to be prepared for all possible consequences of the pandemic. “In April we worked with our financing partner to develop a scenario for a second wave of pandemics in order to be financially secure in this case,” she reveals.
At the latest in the upheavals of the pandemic, it is now very clear whether a family company has positioned itself crisis-proof in good time. But unlike the bicycle manufacturer Prophete, this does not seem to be the case for many.
“Most family businesses are not prepared for such a situation,” says Konrad Fröhlich, Managing Partner of the consulting company Struktur Management Partner. “Many entrepreneurs don’t even know what a crisis really feels like.”
Avoiding Problems with a Family Constitution
Marc T. Oehler knows exactly what a crisis feels like. He is the managing partner of the cold steel producer Bilstein Group. As a supplier to automotive suppliers, he is used to challenging framework conditions. The structural change in the automotive industry and the uncertainty as to which technology will ultimately prevail made planning difficult for suppliers such as Bilstein.
“The current corona crisis has exacerbated this development again,” reports the entrepreneur. Some customers have put projects on hold in order to conserve their resources. “Many projects are also delayed because there are no personal meetings.”
In such an uncertain environment in particular, it is necessary for a family business to get potential problems out of the way in good time. “It is very important to clearly separate the emotionally charged sphere of the family from the company at an early stage,” advises the expert Fröhlich. “Both have to stand independently of each other on a financially secure basis.”
If there are financial dependencies between family and company, one must clearly regulate how to deal with it in an emergency. At the Bilstein Group, for example, there is a consensus within the family that there is a strong limit on how much money the shareholders can withdraw from the company. This is also stipulated in the partnership agreement.
“The fact that we have pursued a very cautious extraction policy over the past few years and decades helps us a lot now,” confirms Oehler. “As a family, we have a very great responsibility for the company,” he knows.
A few years ago, the family business Pieroth signed a family constitution to be prepared for difficult times. That was important, reports Johannes Pieroth, managing partner of the wine merchant, because “such a constitution can help avoid many conflicts”.
The family must, for example, define their values and the distribution of tasks. “There it is also stipulated that no family member should be dependent on distributions,” says Pieroth.
Separate company and family financially
His company was also hit hard by the corona crisis. In the wine trade, there is a lack of personal contact at events, which makes winning new customers difficult. In addition, Pieroth has a trade fair construction company as a second pillar, where sales have practically collapsed completely.
But the preparation also helped here. The family not only ensured that the company and the owners are financially independent of each other, but also founded a family holding company and separated the trade fair construction from the wine trade some time ago under company law.
This means that the problems in exhibition stand construction cannot easily affect the rest of the company. “In a crisis you can tell whether the foundation is right,” says Johannes Pieroth.
In order to have a clear picture, the bicycle manufacturer Prophete agreed years ago in the partnership agreement that only one of the two owner families may be a partner. If someone from the group of shareholders wants to work in the company, it has to be the managing director and both shareholders must agree.
Numerous prominent examples show what a lack of separation between family and business can cause. The family disputes at Oetker and Tönnies have been a burden on the company’s strategic development for years. A shareholder dispute over the payment of inheritance tax is currently shaking the Tengelmann owner family Haub – and now threatens to burden the company.
Consultant Fröhlich also knows from personal experience that timely settlement of such questions is not a matter of course. As a restructuring expert, he has already accompanied dozens of family businesses on their way to a future-proof organization. “In a crisis you cannot afford arguments.”
Driving the digital transformation
But many owners are only now realizing the need for action. “The crisis often also means an opportunity to accelerate developments that would have been necessary anyway,” he observes. “Now there is pressure from outside to finally tackle the transformation.”
And the pressure is likely to be even greater. “Many family businesses survived the first wave of corona more or less well, secured liquidity and stabilized operations,” explains Fröhlich. But the second wave now confronts them with completely different, long-term challenges.
“Now the question is, for example, whether the family will keep peace if there is no dividend for a few years, or whether the strategic direction still fits the changed environment,” said the consultant.
The pace of transformation has also accelerated at the wine merchant Pieroth. “The first wave more or less hit all of our corporate divisions,” admits Johannes Pieroth. “But since we as a family company have short decision-making paths, we were able to react quickly and create new digital sales channels and formats.”
Pieroth is now offering digital wine tastings via video calls or organizing online wine festivals with a multimedia presentation of the products. In addition, there will in future be the possibility of creating individual taste profiles for customers in online retail, which was previously only possible for personal wine tastings. “In a short time we have developed a lot that we can now use in the second wave,” says Pieroth.
But in the end it all depends on the people involved in all structures, especially in family businesses. “Family members who are actively involved in the company are a very important factor in the crisis,” observes the expert Fröhlich. “You can give the company a face and create trust among employees and business partners.”
Entrepreneur Lönne also made the experience. “The family has a great influence on the mood in the company, and they should fill this role in such a difficult situation,” she advises. And it can therefore also be a role model when it comes to implementing unpopular measures.
“I was the first to consciously wear a mask in the company,” recalls Lönne, “even if one or the other smiled at me as being overly cautious at first.”
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