Edited by Fundación IMEF (the Mexican Institute of Financial Executives Foundation, FIMEF), the publication includes examples and exercises to support owner-administrators of private family businesses in their decision making.

By JOSÉ ANGEL DE LA PAZ | EGADE BUSINESS SCHOOL

The key criteria for managing the finances of a family business and ensuring its legacy and growth are presented in a new book by Federico Trigos and Mario Doria, Professors at EGADE Business School at Tecnológico de Monterrey and Universidad Iberoamericana, respectively.

The work entitled Finances in Private Family Businesses, published by the IMEF Foundation, seeks to help private business owners and their families who have risked their capital to create and sustain a family business.

In an interview, Trigos explained that the motivations of the owner-administrators of family businesses, who are often mothers or fathers, are not necessarily the same as those of executives who run large and/or public companies.

"While non-family companies pursue clear goals, such as increasing shareholder equity, family companies share additional, and no-less important, non-economic objectives," he said.

The owner-administrator of a family business, Trigos added, must make sure that the business provides the money necessary for the family's goals and, at the same time, the cash flow and profits to ensure that the business is sustainably competitive.

"It is not enough that the company has a higher profitability than that of its industry, in addition the funds from those profits, the dividends distributed to the family, must be sufficient to satisfy the family’s non-economic goals," he observed.

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The book, Doria explained, addresses the effect they have on managing the finances of the family business.

“We analyze various decision-making scenarios that are solved using concepts such as the value of money over time, the effects of inflation and the cost of capital. Moreover, some examples that we present touch on topics such as planning for the children’s education, the protection of value against currency fluctuations and succession projects, among others,” he said.

In this work, noteworthy proposals to ensure the long-term permanence of a family business and its ability to achieve family objectives are presented from the perspective that both the related parties and the family need the enterprise to continue over time.

Similarly, the authors address options for the parents' company to finance the sons' entrepreneurial ventures, considering these contributions as family investment projects or as the integration of a family corporation, and presenting the concepts of minority and virtual corporations.

“We have tried to show the financial advantages of expanding the family business when it is focused on supporting the sons' businesses. We believe that this way of growing improves the integration of the family and the creation and increase of its socio-emotional wealth (SEW), and diversifies financial risk,” explained Doria.

Ignacio de la Vega, Dean of EGADE Business School - Tecnológico de Monterrey and the Tecnológico de Monterrey School of Business, highlighted in the foreword that the Trigos and Doria book presents a road map for understanding and measuring the value of family businesses.

"It is extremely useful for families seeking to start a business, as well as families with established businesses, who require basic knowledge of the finances of their businesses, or experts and scholars of family businesses, regardless of their size," he added.

The book will be available in electronic format here shortly, and will be presented this October 15th within the framework of the FIMEF X International Congress on Financial Research.

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