Institutionalisation in Family Businesses
When a lender or investor looks at a family business, the first question it asks is whether the company can operate independently of its founder.
Why institutionalisation is a precondition for financing
A company where a single person makes every decision, with an informal governance structure, carries a high key-person risk in a lender's eyes when applying for growth capital or a loan.
That risk either worsens financing terms or blocks the deal outright; institutionalisation is therefore a step that comes before financing, not alongside it.
Formalising the decision-making mechanism
The first step is usually setting up a board or advisory board and tying significant decisions (investment, borrowing, senior appointments) to a defined process.
The aim is not to reduce the founder's authority but to ensure decisions are documented and that the company can continue without the founder.
Moving financial reporting to international standard
Many family businesses run a tax-driven, simplified accounting system. For a lender or investor, this makes it hard to see real profitability.
Moving to independently audited reporting close to international standard usually takes one to two years and needs to be completed before the financing process begins.
Separating family assets from company assets
An unclear line between the company's real estate, vehicles or cash and the personal assets of family members complicates both valuation and security structuring.
Making that line clear both speeds up the financing process and reduces valuation disputes in a future sale process.
Second-generation and succession planning
An investor or buyer questions the company's management continuity: who continues after the founder, and with what capability? An unclear succession plan is a frequent source of hesitation in growth-capital discussions.
A written succession plan is a signal of confidence not only for family harmony but for capital coming from outside.
Corporate FinanceAs an independent corporate finance advisory firm in Türkiye, we define the capital a company needs for growth, investment or transformation, make it financeable and secure it from the right source.
Learn moreFrequently asked questions
How long does institutionalisation take?
It varies from one to three years depending on the company's current structure; reporting, governance and asset separation can run in parallel.
Can financing be sought before institutionalising?
It can, but a lack of institutionalisation usually results in higher-cost or more restrictive terms.
Is a family constitution necessary?
It is not mandatory, but because it puts decision-making and succession in writing, it is a confidence-building document in investor discussions.
NART Insights
Why the Material Adverse Change (MAC) Clause Is Critical
If things go wrong between signing and closing, the MAC clause is the most contested clause determining the buyer's right to walk away.
Learn moreHow to Design Earn-Out Structures and Their Risks
An earn-out looks like a practical tool to bridge a price gap, but badly designed, it can become the biggest source of post-closing disputes.
Learn moreWhen to Use Representations & Warranties (R&W) Insurance
Transferring the seller's warranty liability to an insurance policy can protect both buyer and seller from post-deal risk.
Learn moreStart a mandate discussion
Tell us about your capital requirement, your transaction idea or your structuring problem. The first assessment meeting is free of charge and strictly confidential.