The words of James Joyce are as simple to understand, as it is to practice and preach: “I am tomorrow, or some future day, what I establish today. I am today what I established yesterday or some previous day.”
If you own or co-own a business or professional practice in the UAE, it is important that you plan for its future, and that of your family members, before someone has to sit back and sigh or cry over what went wrong. As a business owner, a significant portion of your wealth — and possibly your family’s main source of future income — will be tied up in your business.
The success of your estate planning is dependent upon this business being transferred smoothly, or sold to a third-party for a fair price. Either way, it takes considerable planning and preparation, and should be ranked high on a priority task list for all business owners.
Global statistics estimate that less than 30 per cent of family owned businesses survive to the second generation, and less than 12 per cent to the third. The survival rate for the fourth generation is a meagre 3 per cent. For expatriates living in the UAE, these figures may be ever more alarmingly lower.
If you do not have a proper business succession plan or estate planning in place, you simply cannot be sure what will happen after your death: whether your family will be provided for, who will look after your business, and when and how your beneficiaries will stand to benefit from the investments you have made over the years.
Several uncertainties exist regarding real estate inheritance under Sharia law, especially in the case of offices, showrooms, manufacturing or warehouse facilities that are owned or co-owned by an individual, but used by the business. Unlike other jurisdictions, the UAE does not practice ‘right of survivorship’ (where property passes on automatically to a surviving joint owner upon death of the other), and the local courts will have a final say in the matter.
All businesses — whether sole proprietor firms, partnerships, joint ventures, limited liability companies or free zone corporations — should plan for the transfer, succession, and/or sale of the business in unexpected circumstances shrouding the owner or a partner.
It is to be noted that planning business succession is a process — not an event — and it is intuitive, interactive, and reflective of circumstances. The process will also vary considerably, based on the number and diversity of issues involved. Consequently, there is no single fit solution that will work for everyone; each case has to be studied and evaluated independently.
Succession is riskier, more time-consuming, and definitely more expensive when carried out following a departure rather than in advance. Even veteran company directors are guilty of greatly underestimating the difficulty, time, and cost associated with succession planning, especially if they have not thought out the company’s unique set of circumstances. For sole proprietors or owners of medium-sized enterprises, the task is harder, and longer.
It is best to begin by addressing and answering some pertinent questions yourself, before consulting professionals or experts: Who will run the business after you? Will revenues decrease dramatically? Will all your loyal clients take their business elsewhere? Will your business survive in your absence?
Succession is not episodic. It should be treated as a continuous practice whereby you and team are prepared for transitions at any time, and at multiple levels. This should include ownership, C-suite positions and other critical positions.
Planning the future of your business and ensuring seamless continuity and success may be a complex process, but professionals can provide assistance in setting up bespoke solutions like trusts, private annuities, buy-sell agreements, offshore foundations, self-cancelling instalment notes, family limited partnerships, management buyouts or direct gifts or sales.
They can also minimise the possibility of conflict among co-owners, partners, and heirs, thereby lowering the odds of litigation, and the costs and time involved in probate.
A good business succession plan will address the death, disability or retirement of a business owner, as well as the sale of his or her interests. Further, a great plan will ensure that all objectives are accomplished — that the most effective business transfer is realised, and that funds will be available to provide maximum financial flexibility
With adequate planning, your establishment can outlive you tomorrow. And it will simply be the result of what you manage to establish today.
The writer is Chair of Marketing and Communications at Entrepreneurs’ Organisation (EO).