Family-run companies

In Family Businesses, Financing is still the Key Concern

February 2023 Living

Nina Novak


There are brave business people everywhere in SE Europe - visionaries motivated by brilliant ideas and equipped with a business plan and the willpower and drive to turn an idea into reality. These people may prove to be the business founders or the leaders of a family venture.

One of the best ways to promote economic growth in a region where family-run businesses account for approximately 50-60% of GDP is for financial institutions to work with them. Financing operations in family businesses can be assessed by three key criteria: control of cash flow, liquidity and having sufficient capital reserves, say experts at NLB. The driving forces behind financing decisions in family businesses tend to be based on personal preferences regarding the rate of business growth, attitude to risk and the ownership structure. The most common forms of financing in family businesses are from the retained profits of previous years and bank loans. All successful companies have the same merits, namely, high-quality products and services, strong control of operating costs, adaptable and focused management teams, a known presence in international markets, and strong and durable supply chains.

Two of the key challenges faced by family businesses are the harmonisation of interests between the different generations and the creation of clear boundaries between business and family activities, they emphasize in NLB. Family-run businesses play an important role in employment creation and economic development, so they can rightly lean on regional banks for assistance when overcoming unexpected challenges. The consultation process in the selected bank should review all aspects of the business thoroughly as well as the associated risks. It is crucial to understand the company’s business model, how and in what manner the companies generate revenue, what their relationships with customers and suppliers are like and what are the key responsibilities of the management team and other principal employees. It is also essential that individuals in the company have clear job descriptions and candidate profiles. It is extremely important for the bank that family-run companies know and understand how to deal with the consequences of changing business relationships especially when there is new management and /or new stakeholders. Only when the business model of these companies and the family’s relationship with the company is fully understood can the right solutions be found.

Finding the right partner

It is vital for the family-run company to work with a bank whose portfolio also consists of small and medium sized family-owned businesses, as this ensures that the bank has a broad overview of many different practices and business models in such SMEs. As a result, the bank will have gained exposure to different scenarios and consequently different solutions. NLB, the largest banking group in SE Europe, points out the example of a family business that, through the handover of two generations encountered many challenges and addressed them very precisely in the so-called “Family Constitution”. Family Constitution is a document, written to clearly define all unwanted or prohibited behaviour, for example, the interference of spouses in the business. It also defines the job roles of all the family members employed in the company, outlines their responsibilities, and also identifies their successors. Such a document also defines various risk scenarios and the level of risk permitted under the family constitution. “The family constitution was drawn up in a very thoughtful and precise manner, which subsequently paid off handsomely for the company through the handover between generations, as it helped it navigate successfully through disagreements and conflicts between the heirs and their partners. Such a structured approach to the continued management of the company also benefits the bank during the handover between generations. It helps to answer the key questions that we ask ourselves when deciding whether to cooperate or deepen cooperation with such companies. On such a basis, the bank can also make decisions more easily and manage risks effectively,” they say at NLB.

Almost 40% of family businesses in Slovenia are run by managers who are over 50 years old.

Photo: Unsplash

Future challenges family-run businesses can't ignore

Family businesses in the region significantly contribute to the GDP. As with other prosperous companies, the winners are those who are successful in finding, recruiting and retaining talent, companies that continuously maintain a high level of innovation and companies that will adapt their operations to comply with ESG standards. The winners will be family businesses that can successfully implement smooth management handover between the generations, as well as those that generate revenue on the domestic and international markets, they point out in NLB.

Generational change will always be the biggest challenge in such companies. For example, almost 40% of family businesses in Slovenia are run by managers who are over 50 years old. Most of these managers represent the first generation of the family, and they have responsibility for managing and developing these companies. For long-term survival and success, family businesses in the region will have to find an appropriate balance between traditional orientation and innovative development, which means that they will have to accelerate digitalization and also comply with the transition to sustainable operations and the introduction of ESG standards, both of which will be increasingly important in the future.


This article was originally published in The Adriatic Journal: Strategic Foresight 2023.
If you want a copy, please contact us at