Cash-Flow Implications

A family business can help or hurt its cash flow depending on whether it compensates family

members at market value. If a family member’s compensation is based on “family values,” such

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that the parents’ compensation is excessive and the children’s compensation is much less than

their fair market value, this would give an inflated picture of the company’s

profitability. [6] However, it will help the company’s cash flow because they will have more

money to spend on the business. If, however, the children’s compensation is excessive, often

based on housing and family needs of the family members as opposed to their worth to the

business, this would give an unrealistically low portrayal of the profitability of the

business. [7] This will hurt the company’s cash flow because the amount of money available to

spend on the business will be reduced.

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