More than one-third (37 per cent) of Canadian small business owners currently have a succession plan in place, up from 15 per cent in 2010, according to a study released by BMO Financial Group.
However, more than one-half (58 per cent) still do not have one in place and the top reason preventing Canadian small business owners from establishing a succession plan is the view it was too early to begin thinking about it (36 per cent).
"Just like creating a business plan or buying insurance, implementing a succession plan well in advance of your projected retirement can guarantee a smooth transition process once it's time to execute it," said James Wong, vice-president of succession planning at BMO Financial Group. "Creating a succession plan can also help realize the maximum potential value of a business while mitigating risks associated with economic uncertainty or a sudden shift in management."
Of those businesses with 10 employees or more, one-half have a succession plan in place while two-thirds of business with fewer than 10 employees reported do not have a plan, found the survey of 500 business owners.
One-third (36 per cent) of small business owners want to keep their businesses in the family while more than one-quarter (26 per cent) would select an outside source to buy out their business.
BMO offered the following advice around succession planning:
Get a head start: Many business owners assume the demand for their business will be there once they are ready to make the move, but this is often not the case. Succession planning should begin at least 10 years in advance to realize the full potential value of the business and ensure a smooth transition.
Consider every option: Whether a small business owner chooses to sell, transition to a family member or business partner, or dissolve the business completely, many complex issues need to be evaluated before a final decision is made.
Speak with a financial advisor: Just as each business is unique, so is every succession plan. By working with a financial advisor, small business owners can develop tailored solutions and an ideal succession strategy to meet their needs.
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