Business succession plans have always been important, but they’re arguably more critical now than ever before. The Canadian Federation of Independent Business recently released a report indicating that 72% of small business owners plan on exiting their business in the next 10 years. A substantial number of respondents (47%) actually plan on leaving within the next five years, making a wave of business transfers imminent. What creates some cause for concern is that despite these large figures, only 8% of business owners have a formal succession plan in place.1
A generation is retiring
The reason for this impending business succession boom is tied to another boom from years ago. Baby boomers are quickly reaching retirement age and with that, they are leaving their businesses. In fact, 80% of these projected business exits are attributed to a planned retirement2. Some operations will close down, others will transfer within a family and others will be sold to an outsider. Regardless of the goal or circumstance, an exit plan is crucial to both the continued success of the business and one’s retirement.
What business owners should do
A formal succession plan begins when a business owner discusses their current situation, professional and personal goals and preferred timeline with their wealth advisor. The goal is to get organized, identify and formalize one’s intention for the business, determine a successor or plan to terminate the business, and also to have a “plan B” in case of changes in one’s plan or circumstances beyond their control. There are government regulations to be followed during the sale or succession of a business, and one may be required to register a new business number or CRA account (particularly if the business name has changed)3. A business succession planning expert can walk you through these possibilities now and again at the time of succession.
Without a formal plan, there is increased opportunity and likelihood of conflict, stress and disruption. It could result in the end of a business or animosity between potential successors or other key individuals.
It’s important to note that plans can change, and it’s smart to be prepared for more than one scenario. While a business owner may intend on passing their enterprise down to a child or grandchild, fewer than one in three businesses in Canada are actually transferred to a second generation4. Knowing this, it’s best to have a plan that accounts for outside sale as well as family succession, should the latter be one’s preferred option.
To learn more about business succession planning and discuss your goals and options with a professional, please contact our team – we’d be pleased to have a conversation.