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How to Set Financial Approval Limits in a Family-Run Business
Jun 20
3 min read
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Trust is vital. But without structure, it turns into chaos.
A second-generation business owner once shared:
“Everyone in the family could sign cheques—there was no real limit. One small vendor overpayment triggered a massive blame game.”
Another said:
“We assumed verbal approvals were fine since we’re family. But once we grew, even small purchases led to confusion and tension.”
Family-run businesses often rely on trust over structure. That works—until it doesn’t.
Financial approval limits don’t mean you don’t trust each other.
They mean you trust each other enough to define boundaries.
Here’s how to set up approval systems that create accountability—without friction.
Step 1: Why Approval Limits Matter in a Family-Run Business
Avoids overlaps and double-spending
Brings clarity on who can decide what
Protects cash flow discipline
Reduces emotional conflict in business decisions
📌 Informal systems work at small scale. Once spending grows, structure prevents misunderstanding.
Step 2: Classify the Types of Spending First
Create broad spend categories:
Type of Spend | Examples |
Operational | Raw materials, utilities, vendor payments |
Administrative | Office rent, travel, technology |
Capital | Machinery, vehicles, office expansion |
Employee-related | Hiring, salaries, bonuses |
Owner-related | Draws, dividends, personal reimbursements |
Each of these needs its own threshold and approval flow.
Step 3: Set Clear Approval Tiers by Role
Define limits not by person, but by role or designation (even if family members hold them):
Role | Approval Limit (per transaction) | Escalation Required? |
Accountant/Admin | ₹5,000–₹10,000 | No |
Operations Head | ₹25,000–₹50,000 | Above ₹50K to Director |
Director (Family) | ₹1 lakh | Above ₹1 lakh to Joint Approval |
MD/Promoter | >₹1 lakh–₹5 lakh | Optional board note |
Board/Family Council | >₹5 lakh | Mandatory note/minutes |
Adjust numbers to suit business size, but create tiers.
Step 4: Introduce Joint Approvals for Sensitive Spending
For high-risk categories like:
Capex
New hires
Major vendor contracts
Loans or advances
Set up a dual-signatory or dual-approval system (e.g., one operational + one promoter approval).
This reduces solo discretion and builds shared responsibility.
Step 5: Formalize the Process—Even Simply
✅ Use a Google Form, WhatsApp log, or email trail for each request
✅ Approvals above a limit should be logged with:
Amount
Purpose
Who approved
Supporting invoice or quotation
✅ Maintain a shared Excel or dashboard to track approved expenses weekly
📌 Even in small teams, documented approvals avoid confusion later.
Step 6: Separate Business vs Personal Spending
In family-run businesses, this is where lines blur the most.
Personal insurance premiums should not go through operations
Family holidays shouldn’t be clubbed with official travel
Owner reimbursements should follow the same documentation process
Clarity on what qualifies as a business expense should be communicated to all family members involved.
Step 7: Review Limits Annually
As the business grows:
Old thresholds may become too tight
New roles may emerge
Certain vendors may require standing approvals
Do a once-a-year review to reset limits and address any friction or overreach from the past year.
TL;DR – Too Long; Didn’t Read
Financial approval limits bring clarity and discipline—even in family-run setups.
Classify spending into categories, and assign approval levels by role, not individual.
Use joint approvals for high-impact or sensitive spending.
Document everything—even via simple tools—to avoid “he said, she said.”
Review and refine limits annually.
Structure doesn’t kill trust.
It protects it—especially when the business is built on relationships as much as revenue.
Because in family-run businesses, the goal isn’t just growth.
It’s growth without resentment, confusion, or conflict.
