Only 3% Of Nigerian Family Businesses Have Laid Down Strategy For Wealth Transfer – KPMG

Clearly defined structures for leadership succession and wealth transfer are essential building blocks for sustainable family businesses. However, only about 20% of family businesses in Nigeria have a plan for leadership succession and a minuscule 3% have a laid down strategy for wealth transfer. These findings were presented by KPMG Nigeria in its recently released ‘Nigerian Family Business Barometer’ publication.

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.

Commenting on the report, Segun Sowande, Partner and Head, Management Consulting, KPMG in Nigeria remarked that, “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. In his words, “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 are critical success factors to building businesses that will outlast the founder’s generation.

The first edition of the Nigerian Family Business Survey Report is replete with insights from family businesses across Nigeria and draws comparisons between the Nigerian, African and European family business community. 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.

Some of the insightful findings presented in the Report are shared below:

• To better define the top of the mind issues of Nigerian family businesses, we asked our respondents to highlight their top three “stay awake” issues. 47 percent of the respondents cited Limited access to finance as their most important stay-awake issue followed by fluctuating exchange rate, 42 percent and declining profitability, 27 percent. In Nigeria, 58 percent of family businesses have a formal board of directors in place, compared to about 46 percent of respondents across Africa. For family businesses in Africa, the future is all about sustainable growth and although they are optimistic, there are still major challenges inhibiting their growth plans. Like all companies, family businesses need financing. 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.

When asked to identify future objectives, unsurprisingly, 62 percent cite improved profitability, 38 percent, higher turnover and 27 percent – 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.Family businessses in Nigeria may need 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 optimization 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.
• Only 20 percent of family businesses in Nigeria have put in place formal structures for leadership succession while 3 percent have defined structures for wealth transfer and participation in the business – which 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, etc.

To read the full report, visit https://home.kpmg.com/ng/en/home/insights/2017/05/nigerian-family-business-barometer.html

KPMG Press Release, title modified.