Canadian’s inherently are an entrepreneurial people, a report published by Innovation, Science and Economic Development Canada shows that 99.7% of businesses operating in Canada have less than 500 employees. With an astounding 97.9% of those businesses having less than 100 employees in total.
That information sounds extremely promising and on the surface would suggest we have primed for continued growth and prosperity. However, when you couple that with the fact that 37.7% of the population is over the age of 50, it begins to paint a different picture. It begs the question; what happens to all those businesses when the owner wants to retire or moves on?
A survey conducted by the Canadian Federation of Independent Business found that barely 10% of businesses have a defined succession plan in place. The survey also identified the following statistics; 23% said they would simply close their business when it came time to retire, 20% planned to try to sell their business to a third party, 18% expected to transfer it to a family member, 12% expected to sell to a partner or employee and 27% just simply weren’t sure what they’d do.
We’d like to believe that selling a business would be the best option for everyone involved and gives the owner, hopefully, a nice chunk of change for their new life. Most people don’t contemplate succession because they believe it can be dealt with in the future or when the time is right. The biggest misconception is the time required to properly prepare a business for succession, be it selling to a third party, selling to an internal stakeholder or transferring to a family member. In most cases, the succession process begins 3-5 years prior to the completion date. This allows for time to correct potential problematic areas, seek out potential buyers, allow for proper knowledge transfer and adequate time to complete a good deal as opposed to a rushed one.
So, for those who are looking to get a handle on their succession plan, it becomes paramount to begin the process early. Engage the right experts early on or begin having conversations with your advisors (accounts and lawyers) to understand the implications for you and your business. There are also many fantastic experts in local markets that can assist in formalizing a plan and executing it, it may seem like an “additional” cost but the rewards will be in full display when a deal is struck.
We’d like to take this time to highlight that our firm has worked with and continues to work with business owners who are looking for more information or are looking to begin formalizing their succession plan. We start with understanding what your goals are and work closely with you to make those goals a reality.