Over $2 trillion in business assets are up for grabs Canada-wide over the next decade as three-quarters of boomer-era small-business owners get ready to retire.
But Corinne Pohlmann says a significant portion of that money is at risk because only a fraction of the businesses have a succession plan in place.
“Only one in 10 business owners have a business succession plan in place and that number is even lower in Atlantic Canada,” says the senior vice-president of national affairs with the Canadian Federation of Independent Business (CFIB). “Failing to have a formalized succession plan could result in lost jobs, bankruptcies or loss of stability for the business.”
The majority of retiring business owners rely on the sale of their business to fund their retirement. “If they can’t sell their business, they have to delay their retirement. That adds another stress to the owner, their family and employees.”
“Unfortunately, not every business is prepared for succession,” says Sherry Martell, executive director of the Truro and Colchester Chamber of Commerce. “And we have seen the impact on the local economy when long-time businesses failed to implement a well-thought-out exit strategy, which ultimately resulted in closure and job losses, along with the loss of products and services valued by the community.”
Andrew MacDonald remembers many stressful conversations be- tween his parents as they got ready to sell their auto parts business in Glenholme, just outside of Truro after 24 years.
An engineer by trade, he’d never considered going into the family business growing up, but in 2012, after 10 years in Ontario, he decided to return home and explore his growing entrepreneurial desire.
“My parents weren’t sure I was serious when I first broached the idea,” he says. “It took some time to work out a purchase and sale deal that assured them a good retirement and kept them on the payroll for two years to help with the transition.”
He remembers having to present a business plan to the company’s accountant to prove he had the business chops to maintain the family legacy.
“I thought it was beneath me at the time, but in retrospect, it was a great exercise for me to get to know the business intimately,” he says.
Succession planning experts like Richard Niedermayer, a partner at Stewart McKelvey law firm in Halifax, do not hide the fact that succession planning is difficult.
For vendors, developing a plan should start years before a planned exit date. For buyers, one of the biggest stumbling blocks is failing to take the time to really understand the business they are getting into.
“Today, I realize if I’d taken a little more time to get to know the business, I could have avoided some of my early mistakes as I transitioned the business to a more modern footing,” says MacDonald.
Once he joined an association of peers two years after the initial purchase, he says “that’s when the real education began.”
Business sales that involve families can be especially emotional. Transitioning from one family leader to the next can be a time of trepidation and uncertainty, but also excitement and optimism.
Sometimes, the older generation of family leaders expects the next generation to maintain continuity in the business without deviation from established operational practices. Not only can this hamper the business’s growth potential and innovation, but it can leave the next generation feeling a lack of authority and reduce their desire to take leadership roles.
“Regrettably, studies have shown that only about 30 per cent of businesses successfully transfer from the first to the second generation and only about 10 per cent survive to the third generation,” Niedermayer wrote in a recently published paper. “In Atlantic Canada, owners and entrepreneurs tend to stay active in their businesses longer, making the succession issues somewhat more challenging.”
A good succession plan will lay out in fine detail who is responsible for what, what the financial obligation and rewards might be and how fam- ily members not participating in the venture will get compensated.
Because MacDonald bought the business, rather than have it passed down to him, he avoided any awk- ward discussion with siblings about ownership stakes. The sale agreement also made it clear his parents’ opinions might be sought, but he had the final say.
Why is there such a turnover in businesses now?
According to the 2023 CFIB study Succession Tsunami, 75 per cent of exiting business owners cited retirement as the top reason for leaving their business. Twenty two per cent reported being burned out and 21 per cent said they wanted to step back from their responsibilities as owners.
What is a succession plan?
Succession planning is the process of developing a formal exit strategy for business owners. It determines how a business will be transferred and outlines the steps necessary to prepare for the transition. A well-thought-out succession plan will help ensure business continuity and maintain the confidence of customers, lenders, employees and suppliers of the business.
What are the challenges to implement a succession plan?
The most common obstacle to succession planning for more than half (54%) of small- business owners is finding a suitable buyer or a successor. Nearly half (43%) of owners are struggling to measure the value of their business, while 39% say the business is too reliant on them for day-to-day operations. (Succession Tsunami, CFIB)
What can happen without a succession plan?
Poorly managed ownership transitions may result in business owners making a premature sale (thus not receiving the full value of their business), bankruptcies, closures, a lack of services in the communities where the business is situated, job losses, reduced productivity, and a destabilized economy. (Succession Tsunami, CFIB)
To learn more about affordable housing options, contact Dianne Kelderman, CEO Nova Scotia Co-operative Council www.novascotia.coop Digby and Area Housing Coallition www.facebook.com/DigbyAreaHousingCoalition Affordable Housing Association of Nova Scotia www.ahans.ca
Business succession is critical to the growth and future development of Nova Scotia communities. In future issues we will be exploring various aspects of the process through stories with entrepreneurs who’ve successfully navigated the journey.