What does Financial Governance for Family Business entail?
Below are the critical aspects of financial governance in family businesses.
Financial Accountability – Accounting for all the Financial Transactions.
- It will entail maintaining clear records of all incomes of Family Business, Expenses, Business Assets, Liabilities, and Equity Contribution from Family Members.
- Family Business to Prepare Management Accounts and discuss this on a Monthly Basis in Family Meetings.
- Family businesses to ensure they retain the services of a competent and independent external auditor so that they can offer credibility in the accounting of family business resources.
Disclosure of Financial Transactions
- Disclosure of Compensation to Family members.
- Disclosure on related Party Dealings belonging to Family Members.
- Disclosure of shareholder changes to Family Business.
- Agree and Disclose Additional Family members involved in the Business.
- Agree and adhere to any other necessary additional Disclosures.
Compliance with Relevant Laws and Regulations
- Compliance with the Tax Laws and mitigate the Risk of Non-Compliance
- Align the Family Charter with other governing registration Framework, Company Act, Trust Act, Societies act, etc.
- Compliance with the Labor Laws even where family members are employed.
Prudent application of financial resources.
- Family boards to ensure there are investments, policies, and strategies agreed upon by all family members to guide on the application of resources and disposition of profits.
- Expenditures to be incurred based on properly laid down procedures and approvals to be put in place so that there are checks and balances.
- Proper leadership structures to be defined, roles and responsibilities of each family member, so that there is clarity in the application of the family business resources.
Equitable application of Financial Resources
Family members can be compensated in various forms:
- Salaries and other employment benefits. This should be performance-based and clearly defined.
- Dividends from the shares invested in the business
- Sitting allowances when they attend to board meetings.
- Director’s fees and remunerations.
- Stock issues to family members.
- Rent for use of individual family members property for business.
- Interests on any monies lent to the family business.
Issuance of shares to family members
- Family members can be issued with shares as share of their inheritance into the business or as purchase of those shares from family members.
- Policies can be made so that those members who work in the family can trade off their salaries for shares.