Key elements of family businesses

Families maintain strong links to their business
The majority of family businesses have a significant amount of family member involvement – with more than 97 per cent owned by family members. The Top 100 survey conducted in 2014 revealed more than 63 per cent of family businesses are Ugandan owned and 23 per cent foreign. 14 per cent are composite ownerships.

With both ownership and management in family hands, governance structures are less visible and where they exist they are strongly influenced by family. 73 per cent of family businesses have boards – albeit dominated by family members and 23 per cent don’t have. Despite this fact, families are quite open to inviting independent members to their board.

While in need of financing, family businesses fear to lose independence
Internal profits are not always enough to finance family businesses’ plans to grow and expand. 89 per cent of are afraid to lose independence thus finding a suitable financing partner becomes challenging. While the preferred source of capital for expansion remains bank loans at 44 per cent, closely followed by founder savings at 30 per cent, family businesses have less interest in venture capital (6 per cent) and listing (2 per cent). This could be explained by fear of losing control and lack of awareness.

Family values and ethics play a vital role in choosing a financial partner
Family elements like shared values, ethos and other intangible assets are very important in choosing a business partner. Most family businesses are not clear on what drives their success and therefore, what they place importance on as a family. Most of these remain personal values for the founder and not necessarily family members. There is no clear understanding of desired characteristics for external investors, other than the need for capital.

Being part of a family business can often be lonely, with unique challenges. We want to create an avenue to share experiences and start a conversation around family business. We want to connect with you, and share our insight, our experience, our research, and our point of view. We want to talk about what matters in the day-to-day running of your business. We encourage you to participate, share your thoughts and insight, and pose questions.

The writer is a certified public accountant and manager audit at KPMG. You can reach him with questions on: rwalusimbi@kpmg.com.

To be continued next week