Finance Management in Family Corporations

by: Atty. Darlon Serenio CPA, CMA, MBA, CFBA

Collaborating Partner

Premier Family Business Consulting Inc.

No business can succeed and grow without wise financial management. Though talent, intelligence, creativity, timing and luck will propel fast family business’ prosperity, it will take financial wisdom to sustain and increase business growth. Many families in business have turned into family corporations in their initial efforts to professionalize the business and provide legal protection. Much of it were formal paper works. However, many of them have not really transitioned to a more organized, standardized, and really professionalized way of running the family corporation. In other words, they still continue to manage and operate the family corporation in the old and usual way like a ”small” family business. In essence, the corporation is led or managed like sole proprietorship following still the “successful” practices of the entrepreneurial or pioneering stage. However, this will lead eventually to confusion. Family owners and managers will be puzzled and surprised in the long run, that it’s not working as good and smoothly as before. Family corporations find themselves in a quandary of their looming ineffective destiny. This is very true in the area of financial management. Many family businesses that transformed to become family corporations with greater size, assets and profits still do financial practices like the old “owner-manager” operating the cash register machine on a daily basis. Nothing is wrong with that though.

But as the business grows, that becomes inefficient and less effective in properly managing the finance of the family corporation. There is a need to level up in perspective, mindset, and practices. One cannot talk about business without money, that is – without finances. Business primarily is about financial management. Yet how many family corporations have not really shifted their financial perspectives and operations as the business evolved inevitably bigger. Here are some finance management tricks that family corporations must learn about in order to save their business from risks:

(a) Separate personal and business accounts. It is a common mistake of most family business owners to use money from the business for personal expenses. They think that the money their business owns is theirs. It isn’t. The money the business makes is not for the business owners to use for personal or even family needs. Family corporations must establish separate accounting for personal and company money to avoid co-mingling of funds. Proper accounting must be made in

order to manage the business finances. Otherwise, family corporations will fail to see a good picture of how the business is doing.

(b) Recording of business transactions. Family businesses can easily monitor the financial performances of the business if everything is recorded. Thus, it is a must to keep track of all business transactions by keeping the receipts that document the transactions. Family businesses must ask for a receipt for every purchase and keep them in a box, which can be sorted out later at least once a week. This practice will give the family business a good basis for tracking business expenses and spending history. It is always good to keep track of the business’ cash inflow and outflow, in order to effectively manage the family business and ensure it is financially sound and healthy.

This article first appeared at the Premiere Family Business website. You may access the original source through this link.