Balancing the financial needs of the family business



Updated 7/12/2019 4:34 PM

During the life cycle of a family-owned business, there are many reasons to seek financing. From start up to retirement, each loan has a means to an end -- to provide income to the members of the family while maintaining the success of the business.

In our experience, we have identified the financial phases that closely-held businesses can encounter and have a unique perspective on how to manage them, not only from our long history in small business banking, but also as a multi-generation, family-owned operation ourselves.


START UP: At start up, the needs are obvious, financing is essential to create a corporate asset with both income and value for you and your family for many years to come. Borrowing at this time will be determined based on the risk of the venture versus the personal obligations of the entrepreneur to his or her family. There are solutions to reduce the risk to both the entrepreneur and the bank.

GROWTH: As the business continues, financing plays a key role in either refinancing debt to strengthen cash flow or provide working capital to fund growth opportunities. We have seen many companies during the growth phase determine what is the right-size to maximize earnings while maintaining a manageable business that balances time between work and family. Once this is established, business owners generally see reduction in debt and accumulation of capital.

REINVESTMENT: Increased capital leads to more ways to generate wealth. Reinvesting in the business and financing new equipment to stay current with technology is vital for sustainability. In addition, cash flow generated by your current company can fund the purchasing of other companies or the creation of new divisions. Savvy entrepreneurs have also looked at their lease payments as a forced savings plan. If you have to pay rent, why not pay yourself? With good financial planning, it can lead to an asset that will live on long after the founder's ownership in the business.

SECURITY: As a business owner's family needs increase (i.e. college tuition), maximizing income is important. Lines of credit and low down payment loans are ways to conserve cash without effecting the business operation. If the business real estate is owned, rent can be controlled to maximize the family's current expense needs. In today's low fixed rate environment, it is easier than ever to control costs of the business.

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RETIREMENT: It is with great pride that a founder and their heirs, can pass on the business to the next generation. Finding financial balance at this time is critically important to provide the departing generation its retirement without burdening the business with debt that could penalize its future success. A long relationship with a bank that understands your business will aide in this transition. For the entrepreneurs that took the opportunity, it is time to reap the rewards of real estate ownership as an investment providing lease income.

These phases do not always follow this order, as each business is as uniquely individual as its owners and their families. The life of a business is best supported by a bank that knows how to ask the right questions and can provide creative solutions to achieve the results you desire. Our balance of ownership and experienced team, can help you build a financial plan for your success now and in the future.

• Don Hansen is manager of business development at Union National Bank in Elgin. Contact him at or (847) 888-7500.