Survey: Only 20% of Family Businesses Have Succession Plan

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By Obinna Chima

Only about 20 per cent of family businesses in Nigeria have plan for leadership succession and a minuscule three per cent have a laid down strategy for wealth transfer, a report by KPMG Nigeria has revealed.

But the report pointed out that clearly defined structures for leadership succession and wealth transfer are essential building blocks for sustainable family businesses.

These findings were presented by KPMG Nigeria in its latest report titled: “Nigerian Family Business Barometer,” obtained at the weekend.

The report noted that clearly defined structures are essential building blocks for effective transition and sustainability for the family and its businesses. These structures include family councils, clearly defined vision and constitution for the family, requirements for participation in the business, among others.

The report followed a survey of family businesses in Nigeria carried out by KPMG with the aim of assessing the key issues and challenges affecting family businesses across Nigeria, proffering solutions to these challenges and positioning them to thrive and endure beyond the founder’s generation.

The survey revealed that family businesses in Nigeria have demonstrated strong resilience to external pressures and challenges in the last one year and are optimistic about the future.

To better define the top issues of Nigerian family businesses, the entrepreneurs were asked to highlight their top three “stay awake” issues.  Forty seven per cent of the respondents cited limited access to finance as their most important stay-awake issue followed by fluctuating exchange rate (42 per cent), and declining profitability (27 per cent).

In Nigeria, 58 per cent of family businesses have a formal board of directors in place, compared to about 46 per cent of respondents across Africa.

According to the survey, for family businesses in Africa, the future is all about sustainable growth. Although the respondents were optimistic, there are still major challenges inhibiting their growth plans.

The report pointed out that like all companies; family businesses need financing, just as expansion is the priority for most in both the short term and the long term.

“The short-term focus is on organic growth in existing markets, but in the long term, the more ambitious strategies of acquisitions and expansion into new geographical markets are the main focus,” it added.

When asked to identify future objectives, unsurprisingly, 62 per cent cited improved profitability, 38 per cent, higher turnover and 27 per cent – diversification as their top business goals.

In Nigeria and Africa, Family Businesses identified easier access to financing, infrastructure development, reduced administrative burden and lower tax rates, as key changes required to boost their growth prospects. The report urged operators of family businesses in Nigeria to start looking at HNWIs (High Net Worth Individuals) as a viable source of financing.

“HNWIs are happy to be involved and offer their advice, which is a trait that many family businesses are looking for. They would often like to have an equity stake, which (in some cases) could be a barrier to investment.

“The highest priorities for family businesses over the next two years relate to improved profitability, increased turnover and diversification. Family businesses must begin to enforce strategic cost optimisation as a means of tackling decline in profit levels.

“Businesses that do not take firm and sustainable cost optimisation measures will likely soon find themselves dealing with ever tightening profit margins and a stagnant bottom line,” it advised.

Commenting on the report, a Partner and Head, Management Consulting, KPMG in Nigeria, Segun Sowande said: “Families in business have an opportunity to create a lasting legacy that brings with it a sense of accomplishment and pride. However, family businesses like every other business in Nigeria have their peculiarities and challenges.

“While family businesses have the unique characteristics of a family, they, like other companies are often in search of financing to propel their growth.” Sowande further reckoned that as a family grows and changes, the family business must also evolve to accommodate changing family dynamics.

He also noted that preparing and training the next generation as well as improving financial literacy among family members were critical success factors to building businesses that will outlast the founder’s generation.