Introduction to Finance

loanable funds theory 
holds that 
interest rates are a function of the 
supply of and demand for loanable 
funds
The Family Business or Venture
Family businesses continue to be very popular in the United States. 
For publicly held fi rms, corporate goals may diff er in part from 
the goals of managers. For closely held fi rms that are not fam-
ily owned, the business goals and the personal goals of owner/
managers are closely aligned. For family owned or family controlled 
fi rms, a third set of goals—family goals—also must be considered. 
When family goals are closely aligned with the business and 
manager goals, the business can benefi t from family sharing and 
closeness. However, when family goals diff er from business and/
or manager goals, confl ict and an argumentative environment may 
prevail. In such instances, family controlled businesses often fail or 
the family is forced to sell.
Jeff ry Timmons lists several problems unique to family 
businesses or ventures.* First, problems of control, fairness, and 
equity often exist. For example, family members may have diff er-
ent ideas as to how the business should be run. Fairness and equity 
issues relate to the division of work and relative contributions to 
running the business. Second is the issue of credibility, whereby 
founding parents fi nd it diffi
cult to believe that their children can 
perform in a manner comparable to their own.
The third potential problem relates to family dynamics. 
Since it often is diffi
cult to separate business operations from 
family life, tensions in one area often spill over into the other 
area. Fourth is the problem of deciding succession. If succession 
is to involve a next generation family member, the founder must 
disengage his or her ownership rights and delegate an increased 
level of responsibility to the new person in control. For succes-
sion to succeed, the founder must be willing to assume the role of 
advisor to the family member who was selected to run the fi rm in 
the future.