Commerce

Family-owned firms better prepared for post-Covid era

Wednesday, September 8th, 2021 00:00 | By
Cash. Photo/PD/Courtesy

Family-owned businesses are coming out of Covid-19 crisis scarred but with a better understanding of what it will take to survive in future, analysts say.

They say the pandemic’s pressure on family-owned businesses revealed some key weaknesses which if addressed will leave them in a better position to face the future. 

“Overall family businesses have come out of the crisis still standing, but importantly, with a better understanding of the operational intricacies of their businesses, ready to face the future and the opportunities that lay ahead in post-pandemic era,” said Faizal Bhana, Director,  Middle East, Africa, and India at Jersey Finance, a leading international finance centre. 

According to Bhana, the pandemic highlighted the importance of integrating the next generation (NextGen) into the family business, which is critical to succession planning and ensuring business continuity. 

He said NextGen now have the necessary skills, character, capacity and capability to run many of the family businesses, hence, are now ready to make their mark and present the new order of business. 

“Another key trend that has emerged during this period is the accelerated integration and involvement of multiple generations of the family into the business,” he said in a statement.

According to a 2020 study by AsokoInsight, there are about 490 family-owned businesses in Kenya across a wide range of industries earning over $10 million ( Sh1.1 billion) in revenue. 

Of the 490, 14.3 per cent (70 companies) earn more than $50 million (Sh5.5 billion)  per year, with 22 earning more than $100 million (Sh11 billion). 

Despite being a key enabler of several economies, many family-owned businesses in East Africa face structural challenges, including a lack of robust succession planning and good governance strategies, poor management, as well as challenges with the integration of the NexGen

Elizabeth Nkukuu, an investment consultant, advises founders of such businesses to specify the ownership structure in a will so that sibling rivalry do not kill them once the founder is out of the picture.

Additionally, they could set up proper processes and preferably hire an external manager to increase their chances of survival. 

Infighting among siblings

“I think the biggest problem is infighting among siblings. It needs to be clear who is in charge of what.

They should agree on who owns what and who does what,” she says.  Her sentiments were echoed by, Churchill Ogutu, the head of research at Genghis Capital who said succession planning was a key determinant in the lifespan of a family-owned business. 

“It all boils down to succession management. That’s usually the deal breaker for most of the family-owned businesses,” he said. 

A 2019 report by Deloitte projects that 70 per cent of family businesses will have lost their wealth by the second generation, while 90 per cent will have lost it by the third generation highlighting the need for proper succession planning. 

Kenya has witnessed a fair share of business collapse among family-owned businesses in the recent past. 

Last year, wrangles among the directors of family-owned Tuskys Supermarket saw the giant retailer collapse under heavy debt burden.

The 30 year old supermarket was only in the second generation of owners having been handed down to the children of the Founder Joram Kamau. 

In February, Jacaranda Hotels owned by the family of the late Njenga Karume took the final bow after the registrar of companies dissolved its holding company, Jacaranda Tree Holdings Ltd, following a string of court battles involving members of the family.

Others such as Ramco Group, however, are still doing well and have even managed to attract investments and expand operations.

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