This week I had a guest lecture on the topic of family business financing. It is sounds interesting for those who have a family business to learn this topic. The topic was about how an individual in the family business (FB) can make an effective decision making to finance their business or raising the capital of their business. It is important to consider such as; what the family do in order to raise the firm's capital and how they choose the approach in terms of financing. Thus, there are two key areas in order to ensure the successful of the family business; it is probably by having an appropriate governance structures or corporate governance and good financing. Family business is also important because it has owned a large control from time to time in the UK and US.
So, what kind of the themes that we expect to see in the family business in the future? Family business is expected to expand or growth their business perhaps to become a large firm, to make sure employment is continues, a stability environment is important to support the business,a continuous on numbers of trajectory in order to growth and perhaps we expect them to be listed in the stock market because it would be easy for them to gain the finance or raise the capital in order to expand or growth their business.
However, if they cannot get any finance and capital, how they can grow? They will be limited to be able to continue on upwards trajectory in terms of the continuation of services whether in local, national or internationally, could be difficult to get special treat from the community as family business often involve in local community because that is how the business is growth when they have the close relationship with the community; it is also not just about the employment but related to the stakeholders issue because community is the big stakeholder in the local community.
But, why is getting fund be the major problem for FB? why is this happen? Traditionally, the public companies are not difficult to raise the capital because they are listed in the stock exchange. Unlike the family business, it is facing the problem to growth the business because they do not listing their companies on the stock market because they most probably do not want to produce any detail documentation regarding their financial accounts due to they are very closed environments and the nature of them being protective of family secrets and illusive. Therefore, it may leads to the reluctance from the capital borrowers because of they cannot see the business's activities that can convince them whether they have made a right investment, whether the company will use the money well or even whether the investor could receive their return of their money. Hence, in order to get the capital easily, the firms must be transparency the way the accounts and finance are presented as this issue is very important for the shareholders.
In addition, not all family business is a small business. There are also a larger family business who wish to get the outside equity capital which also tend to have a problem in financing their firm or has difficulties to raise the capital; agency problem- where the members or managers act for their own interest only instead of maybe to increase the shareholders wealth, this cause to the lenders not trust the business because the firm tend to forget the value of the particular outside investor. Therefore, they end up with the problem which it will be hard for them to expand or growth or to perform their business activities.
Apart from this, family business also can face with relationships and conflict problem in the business. The relationship problem among the family members itself could occur the conflict i.e. when the fundamental issue of the way an equity or capital should be raise as the conflict matter. Some of these goes around if there are multiple sons conflict in which son will takeover the business; to be the primus inter pares, insufficient reflected by the incumbents which then effect to the frustrations and thus they are not allowed to make any mistakes that restricting on the personal growth probably for the children who are going to takeover the business. Therefore, perhaps, by sit down together and discussed the issues or problems could resolve the conflict.
Consequently, by monitoring several aspects such as considering value of differential generation and behavioral issues are important and may impact on an effective decision making to finance their business and avoiding a conflict:; value= differing values in individuals for instance, younger generation that they might have a different or better view on how to finance the business and behavioral issues; for FB which are close relationship with the employees itself, it is important for the business to remain stable of this element in order to get the right financial planning. Overall, there are a lot of factors that might effected the financing decision making by the family business such as, the firms' culture itself, the business goals that need to achieved, the right attitudes towards the debt financing and so on...
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