Retiring and burnt-out entrepreneurs at risk from succession-planning gaps, says national association
Canadian small businesses, which form the backbone of the country’s economy, could be at risk as long-time owners are coming up to a succession-planning cliff.
New research by the Canadian Federation of Independent Business (CFIB) shows that over seventy-six percent (76%) of small business owners are expecting to sell their company within the next 10 years, which may result in the transfer of more than $2 trillion in corporate assets.
Among exiting business owners, the most common reason was retirement (75%), followed by burnout (22%) and a desire to take a break from ownership (21%). Critically, only one in ten business owners (9%) have a formal business succession plan in place.
Corinne Pohlmann, senior vice-president of National Affairs at CFIB, said, "With over $2 trillion set to be in play in the next 10 years and only a fraction of business owners having a formal succession plan, the risks of improper planning can be big."
"Planning for business succession is a key factor in in ensuring that Canada continues to have a healthy small business community," she added.
For half (54%) of small business owners, the biggest challenge to succession planning is finding a qualified buyer or successor.
Just over two fifths of owners (43%) find it difficult to gauge the worth of their company, and 39% feel that they are overly dependent on it for day-to-day operations.
Owners and their planned exit dates have been impacted by the COVID-19 outbreak and the difficulties it presented with almost four out of ten business owners altering their schedules.
While 22% have postponed it by at least one year – sometimes because they had accrued too much debt or their business's worth had fallen too low during the epidemic – 17% have expedited their timeframe, often because of the stress they were under.
Assuring the protection of present employees is crucial for a large majority (90%) of entrepreneurs who are considering selling their company. Additionally, obtaining the most favourable price is important to them (84%), as is choosing the ideal buyer who will continue their company practices (84%).
Forty-three percent (43%) of business owners seek the assistance of accountants to create a succession plan. About two in five business owners (39%) rely only on themselves to create a succession plan, compared to almost a quarter (24%) who consult with attorneys.
The CFIB is urging governments to do the following to help small businesses plan their succession better:
- Should any changes be made, uphold the spirit of Bill C-208 such that family members who inherit small enterprises are treated similarly to those who inherit them through a third party.
- Increase the Lifetime Capital Gains Exemption (LCGE) amount to $1.2 million for all SMEs, simplify the LCGE, and broaden it to encompass at least certain assets (including fishers and farmers).
- Consider establishing a business succession immigration stream that enables prospective immigrants to acquire and run a current firm in Canada.
