In a family business, there are three primary financial areas: dividend policy, capital structure, and capital budgeting. While most family businesses tackle these financial areas with isolated strategies, CFA Travis W. Harms argues the strongest financial strategy considers these three in relation to each other.
Think of the three financial areas as the legs of a three-legged stool. If a stool has three working legs, it will never topple. However, it can still be crooked and, therefore, wobbly. Similarly, if the three financial areas are not designed to work together, then your business may suffer.
This article defines the relationship between dividend policy, capital structure, and capital budgeting. It will help you better understand how the three financial areas can work together in your family business.
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