I was listening to a podcast featuring Howard Marks from Oaktree Capital. Howard talked about Shinise companies. In Japan, Shinise are long-established businesses that have been in operation for a long time, at least for a hundred years. I immediately connected the two traits he discussed with them – 1) low to no debt, and 2) lots of cash reserves – to people’s individual lives, not just companies. I wanted to focus on those two points and how they are important.

1. Prioritize Financial Stability

Shinise companies keep their debt levels low and hold significant cash reserves. This financial stability allows them to withstand economic downturns and seize opportunities when they arise. In your business, prioritize financial health by managing debt carefully and building substantial cash reserves. For your family, create an emergency fund and avoid excessive debt. Financial stability provides a safety net and enhances your ability to handle unexpected expenses. This foundation is essential for building generational wealth, ensuring that future generations have the resources they need to thrive.

Naomi Hasegawa’s family business, Ichiwa, exemplifies this principle. Established over a millennium ago, Ichiwa has survived wars, plagues, and natural disasters by focusing on stability over profit and growth. They have maintained financial stability by keeping debt low and cash reserves high, ensuring the business can weather any storm.

2. Embrace Conservative Financial Practices

Shinise companies adopt conservative financial practices, focusing on long-term sustainability rather than short-term gains. In business, implement a conservative approach to financial planning. Avoid high-risk investments and prioritize steady, sustainable growth. For your family, practice prudent financial management. Save consistently and make wise investment choices to build a secure financial future. Instilling these habits in future generations helps ensure they understand the importance of financial prudence and are equipped to make sound financial decisions.

Ichiwa’s business model is built on conservative financial practices. They have resisted the temptation to expand or diversify their offerings, instead focusing on perfecting their single product—mochi. This dedication to doing one thing well, rather than chasing short-term profits, has contributed to their long-term success.

3. Build a Strong Cash Flow

A strong cash flow is essential for the longevity of shinise companies. It enables them to operate smoothly and invest in growth opportunities. In business, focus on generating consistent cash flow by optimizing revenue streams and controlling expenses. For your family, manage your income and expenses carefully to ensure a positive cash flow that supports your financial goals and lifestyle. Teaching future generations to maintain a strong cash flow helps them appreciate the value of financial discipline and ensures they can manage their finances effectively.

Shinise companies have a cultural aversion to excessive risk and prioritize cash reserves. This trait has helped them avoid high bankruptcy rates, even during economic downturns like the COVID-19 pandemic. Maintaining strong cash flow and substantial reserves ensures they can continue operations and fulfill financial obligations in tough times.

4. Maintain a Conservative Debt-to-Equity Ratio

Shinise companies often maintain a conservative debt-to-equity ratio, minimizing financial risk and enhancing stability. In business, monitor your debt-to-equity ratio and strive for a healthy balance that supports growth without over-leveraging. For your family, avoid taking on excessive debt. Maintain a manageable debt load relative to your assets and income to ensure financial stability and flexibility. By instilling these principles in future generations, you can help them understand the importance of avoiding excessive debt and maintaining financial health.

Even small shinise businesses tend to have low debt levels and keep operating expenses covered by reserves. This conservative approach ensures long-term stability and reduces financial risk.

5. Prepare for Economic Downturns

Shinise companies are well-prepared for economic downturns due to their financial prudence. Their substantial cash reserves and low debt levels allow them to navigate tough times without compromising their core operations. In business, create a contingency plan and build financial buffers to withstand economic challenges. For your family, have a plan in place for potential financial hardships. An emergency fund and adequate insurance can provide a safety net during difficult times. Teaching future generations to prepare for economic downturns ensures they are equipped to handle financial challenges and maintain stability.

Businesses like Ichiwa have survived various crises by preparing for downturns and maintaining financial buffers. Their long history of stability provides a model for other businesses and families to follow.

6. Invest in Long-Term Growth

Shinise companies invest in long-term growth rather than seeking short-term profits. They allocate resources to areas that ensure sustainable success over time. In business, focus on long-term investments that will yield enduring benefits. Prioritize initiatives that align with your strategic goals and long-term vision. For your family, think about long-term financial goals such as education, retirement savings, and assets that appreciate over time. Encouraging future generations to invest in long-term growth helps them build a strong financial foundation and ensures they can continue to grow their wealth sustainably.

Shinise companies, like the 332-year-old kimono manufacturer Hosoo, have adapted by expanding their offerings into home furnishings and electronics, ensuring they stay relevant while maintaining their core values.

The financial prudence of shinise companies offers valuable lessons in creating lasting success. By prioritizing financial stability, embracing conservative practices, building strong cash flow, maintaining a conservative debt-to-equity ratio, preparing for downturns, and investing in long-term growth, you can achieve financial security and prosperity. Apply these timeless tactics to ensure the longevity of your business and the well-being of your family. Instilling these principles in future generations is crucial for building and maintaining generational wealth, providing them with the tools and knowledge they need to thrive.

Howard Marks of Oaktree Capital has discussed similar themes, emphasizing the importance of financial prudence in his podcasts and writings. His insights into financial strategies highlight how these timeless principles can be applied to both personal and professional financial management.