How family-owned businesses can attract funding

amily-Owned Businesses

Family-owned businesses control a significant portion of Africa’s economy as they form the bulk of Small and Medium Enterprises (SMEs), which in turn form the backbone of Africa’s economy. However, most of these businesses struggle with funding.

These businesses account for two-thirds of all businesses around the world, generate between 70 and 90 percent of annual global GDP, and create 50 to 80 percent of jobs in the majority of countries worldwide, according to 2017 data by Family Firm Institute.

But inadequate financing and opacity of these SMEs’ activities have been found to be major impediments to the economic and social impact of the Family Owned Businesses (FOB) across Africa, despite size and relevance.

This was the submission at a webinar by BusinessDay and Asoko Insight themed ‘West-Africa’s Family Owned Business Universe.’

The experts that spoke at the Thursday’s meeting explained that family-owned businesses had huge growth potentials but were faced with the challenges of raising capital.

“Family owned business provide a unique pedestal because of their ability to respond rapidly to changing market circumstances, which give them the flexibility to take advantage of opportunities and address emerging risk.

“However, these businesses are in a precarious situation as sometimes they are not able to sources the funds to grow their businesses,” Abiola Ojo-Osagie, senior partner, AfricInvest, said.

These businesses must be willing to stick their necks out and show interest in funding and also be ready to open their businesses to evaluation by investors, Ronald Chagoury Jr, vice-chairman of Eko Atlantic,said, while speaking on ways to attract capital.

This is further aggravated by the inability of such businesses to publicise its activities thereby limiting the chances of getting working capital from investors and other funds generating streams including loans from banks.

“Despite their importance to economic growth, SMEs face a persistent financing gap of more than $330 billion a year, including a shortfall of about $190 billion from the traditional banking sector, according to data from International Finance Corporation,

Adrian Mayer, partner at CharlesRussellSpeechlys, gave key insights on how family-owned businesses could prepare themselves to attract funding.

First, they need to have a clear idea of what they want and what they need it for.

They must also learn how to control works, which includes an understanding of who will have the control seat in their relationship with the investors.

Mayer also pointed out that they must be able to know the cost of the capital by having a good knowledge of the cost of entering a relationship with private investors and what the exit plan was.

Furthermore, Ojo-Osagie also mentioned that these businesses need to be transparent.

These experts also explained the key sectors family businesses could make their marks as they expand in the coming years.

These businesses should look towards investing in infrastructure, green energy and projects that provide social impacts such as health care and education, Chagoury explained.

According to Frank Aigbogun, publisher, BusinessDay Media Limited, I see the technology sector being attractive, the health and the real estate sectors also.

Olumide Bolumole, head, listing business at Nigerian Stock Exchange, said, “Investing decisions will depend on the phase of the family business. If they are 10-15 years old, they should look towards value chain opportunities.”

Investment in the technology and the agric spaces are areas family-owned businesses should invest in, as these areas should record some growth over the next few years, he explained.

Contrary to other panellists, Mayer said the family-owned businesses should invest in themselves to see how they can improve and also invest in the next generation, pointing out that it would be a miss not to invest in these areas.

Habibah Ali, CEO, Sosai Renewable Energies Company, also gave some insight on how family-owned businesses could be successful.

There must be a succession plan early on in the business, she said, noting also that the businesses must continue to build competitive advantage by being constantly innovative.

“Never bring in anyone that has nothing to offer even if they are family members,” she said.

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