Navigating Business Transitions

Strategies for Succession and Continuity in Canadian Entrepreneurship

 


 

The Canadian Entrepreneurial Landscape: A Statistical Snapshot

The entrepreneurial spirit runs deep in Canada, with a Statistics Canada survey in December 2022 revealing intriguing insights into the country's business landscape. At that time there were 1.22 million private businesses. reflecting a robust culture of entrepreneurship. Over 97% of those businesses would be categorized as small or medium size (SME). These small to medium businesses account for over 50% of Canada’s GDP and make up over 40% of good exported from Canada. They also employ about 64% of the country’s labour force.

The Looming Challenge: Planning for Succession

Despite the vibrancy of Canada's entrepreneurial scene, there's a pressing challenge on the horizon: succession planning. This emphasizes the urgent need for aging business owners to start planning for succession. It is estimated that almost 47% of the primary decision makers in SME businesses are between the ages of 50 to 64. The need for preparation is evident. Shockingly, however, the Canadian Federation of Independent Business reports that 76% of business owners plan to exit in the next decade, but only a mere 10% of business owners have a formalized written transition or succession plan in place.

Transitioning for Success: The Nobes and Campbell Approach

In their seminal work "50 Hurdles," Chris Nobes and Ian Campbell propose a compelling argument: that a transition process yields greater benefits for the overall health of a business than a mere succession. Transitioning involves gradual changes over time, fostering ongoing involvement from current ownership and facilitating a smoother process. The key lies in embracing flexibility and value enhancement strategies.

Navigating Complexities: The Role of Formal Processes

The University of Alberta Family Business Institute underscores the importance of formal transition processes, particularly in the event of unexpected events like the death of a key shareholder. Families thrust into such situations may face complex tax and ownership issues, compounded by emotional turmoil. Furthermore, family conflict looms large in the transition process, necessitating careful planning and mitigation strategies.

Upholding Strong Governance: Guiding Family Businesses

Many family businesses lack strong corporate governance, posing challenges during transitions. Recognizing this governance gap is crucial for steering family businesses toward smoother transitions. Leveraging advisory boards and external directors can bring impartial advice and strategic insights based on diverse experiences, enhancing the overall governance structure.

The Timeframe for Transition: A Ten-Year Outlook

Transitioning a family business is not a short-term endeavor but rather a decade-long process. The University of Alberta Family Business Institute recommends allowing sufficient time to establish robust processes and agreements for a successful transition. Involving outside professionals and maintaining transparent communication with shareholders throughout the process is imperative for success.

A Strategic Business Decision: Transitioning with Clarity

Transitioning or selling a family business should be viewed as a strategic business decision, not merely a family affair. As the founder or major shareholder, maintaining a strategic perspective is essential for ensuring the legacy of the business endures for generations to come. By embracing formal processes, strong governance, and clear communication, business owners can navigate transitions with clarity and confidence.

 

Key Small Business Statistics 2023

SME Profile: Ownership demographics statistics

Succession Tsunami: Preparing for a decade of small business transitions in Canada

Research - ABFI

 

Links to other websites or references to products, services or publications other than those of Richardson Wealth Limited do not imply the endorsement or approval of such websites’ products, services or publications by Richardson Wealth. Richardson Wealth makes no representations or warranties with respect to, and is not responsible or liable for, these websites’ products, services or publications.

All material has been prepared by McKenzie Wealth. McKenzie Wealth is an investment advisor team or Investment Advisor at Richardson Wealth Limited. The opinions expressed in this blog/ video are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson Wealth or its affiliates. Richardson Wealth Limited, Member Canadian Investor Protection Fund. Richardson Wealth is a trademark of James Richardson & Sons, Limited used under license.