One conundrum facing many family businesses, is to determine, if and how much to support non-core business investments with cash from the business.  Often this issue arises in the 2nd generation of a business when the children, may not want to actively participate in the actual business.  Many parents indulge their children and will support them with the cash that may be critical to keep the business healthy.

I do not mean to be judgmental but a family business is successful just because it focussed all energies on running the business effectively and profitably. Many a family business that has strayed from its core business has encountered financial difficulties.  Take for example a number of families in Vancouver that by 2008 began to dabble in real estate, overleveraged and then ran into financial trouble.  Many of those businesses were financially strong enough to survive the hit but the cost was significant.

What to do?  Set a policy on what investments the family can invest in with assets from the business.  This is a separate decision from the investments that family members can and should make with their distributions (such as dividends) from the business.  These would be group decisions on non-core business investments that may either be strategic or purely investment in nature but are of such a magnitude that financial support may be needed from the company.

The second thing to do is communicate the investment policies, hopefully that have been developed cooperatively, so that all family members are on the same thought process when investments are presented to the family.  This can avoid disappointment and possibly worse, bad feelings.

Think of the investment policy this way.  The family business has been successful, so successful that it has additional cash to invest.  Just invest it wisely.

Learn think apply!