According to the ESOP Association Canada (Employee Share Ownership Plan), Canadian business owners are undecided about a planned exit strategy and the vast majority are unsure how, when or to whom the...
According to the ESOP Association Canada (Employee Share Ownership Plan), Canadian business owners are undecided about a planned exit strategy and the vast majority are unsure how, when or to whom they will turn over their business.
According to a recent Harris/Decima study commissioned by BMO Bank of Montreal, more than half (56%) of businesses polled are in the later stages of their enterprise and yet only 21% of these business owners have decided on or named a successor. Of those businesses who do not have a succession plan in place, 40% believe it is too early to do so.
Yet, in stark contrast to this claim, more recent business owners see the value in putting a formal succession plan into place earlier in the business lifecycle. Only 19% of business owners have identified a successor, yet just under a third of those have a transition plan in place, with training times widely varying.
“Our research and experience advising business owners across Canada shows that many of them are unprepared for the inevitable,” says Sean Foran, vice-president of succession planning at BMO Harris Private Banking. “Whether they intend to sell their business or hand it down to a family member, it’s important they begin planning as early as possible to ensure they get the most out of the many years of work they have put into the business.” Other highlights of the survey revealed:
• Almost 40% of respondents say their ideal succession plan would include selling their business to an outside party.
• Only 17% said they would sell the business to a family member.
• One-quarter of respondents say they have no interested family members and 17% say they have no family members who could take it over.
• 85% of business owners say they are the first or second generation of the family that started the business.
“These findings reflect the mindset of a typical entrepreneur,” says Gail Cocker, senior vice-president of commercial banking for BMO Bank of Montreal. “Most business owners are so focused on growing and maintaining their business, they find it difficult and even emotionally draining to contemplate selling or winding it down. Our best advice is to speak to one of our commercial bankers. They can provide guidance and direction on how to put a succession plan in place.”
Business owners are overwhelmingly intent on using the proceeds from the sale of their business as investment dollars. In fact, two-thirds of business owners surveyed say they will invest their business sale dollars -nearly the same number who intend to fund their retirement through RRSPs or other investments.
However, 61% intend to rely in part on the Canada Pension Plan to get them through their retirement years.
“Clearly some entrepreneurs are concerned the sale of their business will not sufficiently subsidize their retirement lifestyle,” said Foran. “That’s why it’s important they maximize the proceeds of the sale of their business by investing that money wisely with the aid of a professional advisor.”
Almost three-quarters of those surveyed are more than five years away from selling their business, providing ample opportunity for a carefully planned exit strategy.
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