Sheila, a third-generation shareholder and CEO of a $150 million family business, asked me to help her resolve a quandary. She and her company’s other 27 (mostly inactive) family shareholders were considering various options, including selling the company.

When I asked her whether they had a family office, she dismissively answered, “Oh no. A family office is only for families who have sold their companies. And we already have a family council—what would we need a family office for? Besides, we’re too small. We could never afford one.”

In that one breath, Sheila had managed to mention three of most common myths about family offices. Like Sheila, many families who can benefit from a family office rule this option out, and thereby miss out on opportunities to tighten family bonds, bolster the family’s financial and legal savvy, and enhance their purchasing power. It’s time to debunk these myths!

• Myth 1: Only families who have sold their businesses need a family office. A family office can be useful for many multi-generation companies, especially those with inactive shareholders.

There are many different types of family governance structures. As the company and the family evolve in size and complexity, the family governance structure should also evolve:

A family council mainly provides a forum for discussion and communication among family members. A family trust or holding company owns shares in the operating company and concentrates family control, facilitating the input of outside capital in the business.

A family investment company is a structure that parallels the family business and manages assets outside the family company, such as real estate or liquid assets.

A family office can take many forms, such as a family limited partnership, but in all cases addresses four main roles when the family still owns a business:

1. Family as owners. The family office can provide stewardship of the family’s patient capital, including defining and monitoring the investment guidelines for the operating company. My family office, for instance, works with management and the board of directors to clarify shareholders’ return expectations—both return on equity and return on assets. Those guidelines and return expectations can be communicated to the board, which transmits them to management. The family office can also decide which family members will fill board seats.

2. Family as employees. The family office can determine rules of entry for family members seeking to join the business, as well as what kinds of training and development programs the business should provide for relatives who have management aspirations.

3. Family as family. How will the family perpetuate its heritage, maintain communication and resolve conflicts? How, if at all, will it support family members, and under what circumstances? One example is a family bank, whereby a family office creates a fund to invest in ventures created and managed by family members.

4. Family as community. A family office can decide how and where the family wants to direct its philanthropic giving. It can also identify leadership opportunities, such as open board seats, at non-profit organizations where the family may want to maintain a presence.

Especially during times of family and business transition, a family office can help educate relatives about various options, help the family articulate and live by its values and strengthen patient capital. A family office could help Sheila and her relatives consider opportunities and challenges more objectively.

Without a family office, the only glue holding together a growing, dispersed family is the business. So shareholders may cling to the business to preserve family identity and closeness, even if that means passing up opportunities to expand, evolve or sell the company. By providing another organizational structure around which the family can unite, a family office enables the family to base decisions on business and financial factors, not emotions.

• Myth 2: Family offices are solely for managing a family’s wealth. Family offices often provide many services and products beyond investment management. Today family offices may navigate different products for the family, such as insurance, personal lines of credit, and business and family travel and legal services. Family offices can also harness the family’s purchasing power, enabling it to negotiate better prices and terms on these products and services than individuals could negotiate on their own. The professional staff at some family offices can review business plans developed by family members attempting to launch new business ventures.

One critical role the family office can play is sponsoring educational programs on topics like the family’s business, new developments in the industry, personal finance, technology or career planning. In addition, the family office can help connect disparate family members and keep them informed about business, family wealth and other issues.

• Myth 3: Our business is too small; we can’t afford a family office. The size of your business isn’t the most relevant factor; it’s the size of your family, and how dispersed your relatives are. For example, take a second-generation business with one parent and three children active in the company, plus two other inactive children. This family may be able to learn and make decisions effectively among themselves. But what will happen in the next generation? That same business family may have expanded from six members to 20, with only a handful of shareholders involved in day-to-day management. The rest of the relatives may have spread throughout the country, or even overseas. The company may have grown, stagnated or even downsized in this time frame.

A family office doesn’t have to be a big expense. At first, the office might consist of one administrator to provide the services mentioned above. In the founder generation, the founder’s secretary often handled such details. Fourth-generation Freedom Communications, which owns 28 daily newspapers, 37 weeklies and eight TV stations, employs one “shareholder relations” person, who actually provides the functions of a family office. She attends family business conferences to find new services and ideas for family shareholders, organizes educational seminars and researches financial and legal resources.

At the next level, a family office can include a staff—a lawyer, an accountant, an insurance specialist, an investment counselor—to provide, or perhaps help outsource, those services. The last stage could be a full-fledged, legal structure, a holding company that has some shares of the family business not owned by shareholders. It also can provide asset management, legal services, helicopter services or time-sharing on a private jet.

Another option is outsourcing your family office function to a multi-family office (MFO) without incurring the overhead expense of operating a family office internally. Many families with $5 million or more of investible assets have become clients of MFOs like Bessemer, Glenmede, Pitcairn and Whittier, primarily farming out their investment management and other family office tasks.

Large institutions (Credit Suisse First Boston, J.P. Morgan, Citibank Private Bank) have also gotten into the game of advising high-net-worth families. The competition among external service providers for family offices has cut down the margins in the business. This prompted a consolidation, resulting in large MFOs such as Pictet in Europe and Atlantic Trust in the U.S. At the same time, services that a single family office can no longer provide competitively to its clients are being outsourced.

By navigating through the various investment products available and outsourcing when appropriate to an MFO or an institution, a family office can offer family shareholder clients the most competitive investment strategy and other services.

There are at least two possible caveats to family offices, which shareholders should try to avoid at all costs. First, shareholders may come to depend on the family offices, to the extent that they do not know how to take care of basic things for themselves, such as balancing a checkbook or understanding a basic contract. Smart business families make sure that their family office enhances members’ abilities through constant education that leaves them more, not less, empowered to handle life’s complexities. The family office merely serves as a convenience and uses the power of its numbers to bargain for services and products at a better price than members could negotiate as individuals.

The second potential problem is that, especially in the personal finance realm, when family members depend on the family office to take care of everything, they often fail to oversee the family office staff, who may find—and take advantage of—opportunities to bilk the family. To avoid that, some families have turned their single-family office into an MFO, providing its services to several other business families. Becoming an MFO helps align the interests of its own shareholders with those of outside clients and staff.

Family shareholders like Sheila may find they don’t have to wait to sell a business in order to benefit from a family office to manage the family’s wealth and serve its other needs. But families should not relegate all decisions and oversight to hired hands, inside or outside the company. A family office is most effective when it enhances—rather than diminishes—family members’ business, financial and life skills.