The region’s leading financial advisor has revealed that most Small and Medium Enterprise (SME) owners in the UAE have no succession plans for their businesses. Business owners in the UAE are urged to devise succession plans for their businesses to minimise complications that may arise following death, permanent disabilities, or retirement.

According to Dubai SME, the SME sector accounts for 95% of all firms registered in Dubai, 42% of the work force and 40% of the emirate’s nominal GDP. Recent studies by Nexus Group found that 92% 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.

The studies show that most SME business owners, and even CEO’s of large organizations 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, Chief Executive officer 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.”

Without firm succession plans, Nexus Group warns that 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.

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.

“The presence of a concrete succession plan will not only help resolve issues with family members, financial institutions, and government entities, but will also minimize 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 (ROIs) before making any decisions to invest.”

It is also crucial that business owners command a full understanding of the UAE laws and regulations pertaining to such circumstances, and in the case of expatriates, any regulations that may be imposed by their country of origin. The UAE law states for instance, that all bank accounts of a deceased will be frozen until successors are nominated and dependent visas will be cancelled within 30 days. It is also important to note that liabilities, such as outstanding bank loans, guarantees, lease agreements, and payments to suppliers are usually not insured, leaving the personal assets of business owners pledged against these liabilities, and potentially leaving family members in financial distress.

According to Nexus Group, to design a thorough succession plan, business owners must have a clear road map, taking into consideration important factors such as legal, financial, personal, tax, and business issues. A qualified advisory panel including a lawyer, a banker, an auditor, a will specialist, and a trusted financial advisor can evaluate these factors and provide guidance in building a succession plan that best fits a business’ objectives.

Nexus hosts monthly seminars for business owners in the UAE to provide expert financial advice addressing a number of areas concerning running business continuation and succession. The seminars allow business owners to engage directly with highly qualified financial advisors and interact with other business owners during the regular interactive sessions.