Like any other business, family owned ones need capital. Unlike companies following a more public business model though, family businesses are inherently restricted on where to seek capital, due to their unique stipulations.
Our recent global family business survey explored those restrictions, as well as how family businesses tend to overcome them.
We asked family businesses what would likely be the driving forces behind the need for capital in their companies, and the top responses were:
In the short to medium term, businesses say the priority for this financing is expansion in existing markets through organic growth, funding day-to-day operations and new product or service development.
However, over the longer term, family businesses generally have more ambitious growth plans. Acquisitions are top of the agenda with nearly a quarter citing this as the most important funding need, followed by expansion in new geographies (18%) and new sectors.
The popular perception of family businesses is that they are largely self-financing. This is certainly true for a significant minority of our respondents, with 42% saying they are not currently seeking outside finance.
As stated by an Argentinean respondent, “We initially approach family members to buy equity, so that the company shares remain within the business.” In a similar vein, if capital cannot be found from family members, then our survey found that many family businesses next preference was to finance ventures through profits where possible.
However, more than half of the family businesses (58%) surveyed say that they are currently seeking external financing.
This leaves a very interesting, and more diverse than originally assumed, picture of family businesses’ financial needs. Although many still prefer to keep everything in the family, including financing, the majority of respondents are open to external investors, opening up a whole new dimension.