Expansion or exit: Making the right decisions to ensure business success

More than 70% of companies in the UAE's wholesale and retail trade are in the SME category.

During the Renaissance era in the 14th and the 15th centuries, Venice flourished as a centre of international trade, with entrepreneurs and traders from around the world contributing to make the city great. Such has been the case in the UAE as well, and in particular in Dubai, where economic activity has brought together multiple nationalities.
Expat-owned businesses in the region were initially set up by entrepreneurs who were brave enough to seek opportunities for growth in a fertile yet foreign soil. The government's focus on diversification supported by the development of a world class business infrastructure in Dubai, encouraged entrepreneurs from across the globe to establish their businesses in the emirate. In keeping with the tagline: "What's good for business is good for Dubai," the emirate welcomed entrepreneurs with a business-friendly atmosphere which incorporated shipping, airport, cargo services and best-in-class IT network.
More than 70 per cent of companies in the UAE's wholesale and retail trade are in the SME category, according to government data, employing between six and 200 people and with revenues of between Dh50 million and Dh250 million. In the services sector, 16 of every 100 companies are SMEs and in the manufacturing sector the count is 11 per cent. The UAE's leadership recognises SMEs as primary enablers of economic diversification in the post-oil era, and of innovation and the shift to a knowledge economy.
Entrepreneur-run, owner-managed businesses attract clients because of their commitment and values. They often grow in multiple directions depending on emerging opportunities, but carry the same DNA incorporated into the company by the founding visionary. Often, an expat business owner would have watched with pride as the business grew organically over the years, even as children left home to seek professional opportunities elsewhere. What happens then? Is there a plan for the eventual transfer, succession or sale of the business? Is an exit strategy in place, especially one that realises the highest possible value for the founder?
It is possible that multiple family members would now lay claim to a company's management, requiring an effective succession plan that takes into account their aspirations, making operational improvements, addressing weaknesses, identifying growth areas and activities that can be outsourced or closed down. It looks at funding or growth objectives, and the related valuation activity.
In some cases, the owner may have invested his own money in growing the business. A study by Dubai SME showed that as many as 80 per cent SME owners said they had used their personal savings or equity as the primary sources of finance. For macro-economic reasons, these companies may face liquidity issues that could impact continuing expansion. A 2016 study by Dubai SME said equity-funded SMEs grew relatively faster at five to 10 per cent in less than three years, compared to those who have not availed equity financing. The latter showed revenue and profitability growth rate of 10 to 15 per cent in eight to ten years of business.
Dubai today has become the financial capital for the region, boasting headquarters of private equity and mezzanine funds. How can these expat-owned businesses access this smart capital, backed by a formidable slew of financial regulation in jurisdictions such as the DIFC, which protects their interests?
Some successful SMEs may have reached their optimum level, requiring them to break through the glass ceiling into the large corporation space. They may be suited for an IPO, for being listed on the regional capital markets, or require significant financial restructuring. Many SMEs today may be in a position to qualify for corporate banking products such as acquisition finance.
All these mid-cycle challenges require skills that may not necessarily be built into an entrepreneur's DNA, requiring professional advisers to get involved.
With many expat-owned businesses, the agenda is urgent, starting now towards a finish line of maybe five years hence. In such situations, it takes clear-headed planning for the company to continue to grow and harness the advantages that the next stage in its lifecycle may bring. An endgame may not be in sight when setting up a business, but it is possible to plan the milestones and achieve the objectives that become critical at various points in a company's evolution.
The writer is chief executive officer of Emirates NBD Capital. Views expressed are his own and do not reflect the newspaper's policy.