Trillions in play as small business owners seek to exit in the next decade

Retiring and burnt-out entrepreneurs at risk from succession-planning gaps, says national association

Trillions in play as small business owners seek to exit in the next decade

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.

LATEST NEWS