Published On: Thu, Jun 11th, 2015

9 out of 10 UAE businessmen don’t have succession plan

More than nine out of 10 owners of small and medium enterprises (SMEs) in the UAE don’t have long-term strategic business plans and also lack a solid succession plan.

A study by financial advisor Nexus Group found that 92 per cent of these businesses lack a solid succession plan, or a contingency plan, which can lead to a number of issues ranging from family-related complications, partnership issues, and the inability of providing employees with salaries, to the prevention of business continuation and expansion.

Without firm succession plans, businesses, especially family businesses which make up the majority of SMEs in the UAE, may undergo significant turbulence including the absence of a clear understanding among family members.

The SME sector accounts for 95 per cent of all firms registered in Dubai, 42 per cent of the work force and 40 per cent of the emirate’s nominal GDP.

The study advised business owners in the UAE to devise succession plans for their businesses to minimise complications that may arise following death, permanent disabilities, or retirement.

The studies show that most SME business owners, and even CEOs of large organisations in Dubai place significant emphasis on growth and expansion, while failing to recognize the major impact of losing key personnel in the business.

“While it is important for SMEs to grow, the lack of a comprehensive succession plan can lead to the deterioration of businesses and the personal relationships of those involved,” said Tarun Khanna, CEO at Nexus Insurance Brokers, Dubai.

“Drawing up a succession plan and reviewing it periodically will safeguard the wellbeing of family members and dependents of business owners.”

Significant factors that may be affected include employee stability, partner confidence, ongoing projects, third party contracts, and public confidence.

Questions that may arise include who will adopt the role of the affected, what role other family members will play, how the assets of the business will be allocated, what expansion routes to take, and an alternative solution should a family member decide against an assigned role, it said.

“The presence of a concrete succession plan will not only help resolve issues with family members, financial institutions, and government entities, but will also minimise the risk of reduced business value,” said Khanna.

“A well designed succession plan enables business owners to achieve their personal and business goals, ensures survival and growth of the business, and maximises company value in good times and bad. Most potential investors will likely review long-term business plans to determine the potential returns on investment before making any decisions to invest.”