Many small business owners work diligently toward one goal: to sell their business and fund their retirement with the proceeds. But a new survey on business transitions suggests they’re not putting enough into their key asset.
The survey, conducted by Business Development Bank of Canada (BDC) in partnership with market-research firm Nielsen, found that 41% of Canadian business owners are likely to leave their businesses within the next five years, and 52% intend to sell or transfer their business outside the family.
"As for a homeowner putting a house up for sale, entrepreneurs want to realize the highest possible return on selling their business, most often their biggest retirement asset," said Pierre Cléroux, chief economist at BDC.
However, the BDC study pointed out, many entrepreneurs are not properly considering the time and investment needed for a successful transition at an optimal price. Among all prospective sellers, 71% are hesitant to take risks for improved business performance, and 52% have little interest in expanding the business.
The study also said that 60% of small- and mid-sized business owners are aged 50 or older, suggesting an upcoming wave of retirement resulting in a boom in business transitions. According to Cléroux, sellers will most probably outnumber potential buyers, making it harder to find a favourable sale price and minimize transition hurdles.
To enhance their business’ value and improve their sale prospects, BDC had the following tips for entrepreneurs:
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- Keep reinvesting in the business
- Continue to pursue growth
- Ensure financial reports are detailed and reliable
- Make the business stand out
- Focus on quality, not quantity, when looking for buyers — and get help doing so
- Don’t be afraid to cast a wide net
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