The majority of small business owners plan to sell their business within 10 years

The majority of small business owners plan to sell their business within 10 years: more than $2 trillion in business assets are at stake.

According to a new report from the Canadian Federation of Independent Business (CFIB), more than $2 trillion ($2T) in business assets could change hands as three quarters (76%) of small business owners plan to the torch within 10 years.

Retirement is the main reason cited by business leaders for selling their business (75%). However, for 22%, it is due to exhaustion, and for 21%, it is to take a step back from their responsibilities. However, only 1 in 10 business owners (9%) have a formal, written succession plan.

“It is essential for small business owners to plan their succession well. In 10 years, over $2 trillion in business assets could change hands, but very few entrepreneurs have a formal succession plan. The consequences of poor planning could prove costly and stressful,” underlines Jasmin Guénette, vice-president of national affairs at the CFIB.

The biggest challenge to succession planning for half of small business owners (54%) is finding a suitable buyer or successor. Almost half (43%) have difficulty assessing the value of their business and more than a third (39%) say the business is too dependent on the owner in its day-to-day operations.

Given the severe consequences of the pandemic, it is not surprising that many entrepreneurs have changed their starting plan. This is the case for almost 4 out of 10 owners: 17% have anticipated it, while 22% have postponed it for at least a year, often due to heavy pandemic debts or a significant drop in the value of their business during the pandemic.

For a large majority (90%) of small business owners, the most important factor in transferring the business is protecting employees, followed closely by getting the best possible price (84%) and finding the good buyer (84%) to ensure business continuity.

“The absence of a formal succession plan can also destabilize businesses. A majority of owners rely on the sale of their business to finance their retirement. If they can’t sell it, they will have to postpone their departure, which can cause additional stress for them, their family and their employees.”says Laure-Anna Bomal, co-author of the report and research analyst at the CFIB.

Help entrepreneurs find potential buyers

To develop their succession plan, 43% of owners use the services of an accountant, 24% use the services of a lawyer and 39% develop their succession plan on their own.

To help SMEs plan for their succession, CFIB recommends that governments:

• Facilitate intergenerational transfers by ensuring that they are treated in the same fiscal manner as transfers to a third party.
• Respect the spirit of Bill C-208 if changes are eventually made.
• Simplify the Lifetime Capital Gains Exemption (LCGE) and increase its threshold to $1.2M for all SMEs (not just fishermen and farmers).
• Create a structure that would make it easier for potential immigrants to buy and operate businesses in Canada.

CFIB has launched Preparing for Succession, a specialized web page offering resources for business owners to help them plan for their succession and find a buyer.

CFIB has also partnered with SuccessionMatching to connect small business buyers and sellers. A CFIB membership provides a 50% discount on the Succession Planning Program as well as a free one-year membership to the SuccessionMatching.com platform.

“It doesn’t matter if the transfer of a business is planned within a year, two years or twenty years. A succession plan is essential to the success of such a project. In most cases, the transition process fails during negotiations because the owners have neglected to properly prepare the transfer of their business. So we created the Succession Planning Program to help them do that. We look forward to providing personalized advice to CFIB members through this partnership. We will be able to help them make their transfer a success, in particular by putting them in touch with potential buyers.”says Alison Anderson, founder and CEO of SuccessionMatching.com.

Read the full article here.

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