Majority of small businesses still without succession plans
Many who currently don't have a plan believe it's too early to start thinking about it
The majority of Canadian small business owners do not have a succession plan in place, which presents a key opportunity for financial advisors to help business owner clients start planning for the future, according to a study released on Thursday by BMO Financial Group.
In a survey of 500 Canadian business owners conducted in March and April by Leger Marketing, roughly one-third said they had a succession plan in place. That's a substantial improvement from 2010, when a similar survey showed that just 15% had developed a plan.
However, 58% of Canadian small business owners still do not have one in place. The top reason entrepreneurs have been procrastinating on this task, according to the study, is they feel it's too early to begin thinking about it.
"It is never too early to start thinking about implementing a succession plan," said Cathy Pin, vice president of commercial banking at BMO Bank of Montreal. "When you consider that many Canadian business owners are set to retire in the next decade, planning for succession should be a priority for every business."
Smaller businesses appear less likely to have a plan in place, according to BMO's survey. Of those businesses with 10 employees or more, half had a succession plan in place; whereas only a third of businesses with fewer than 10 employees indicated that they had a plan.
More than one-third of survey respondents said they'd like to keep their businesses in the family; compared to 26% who would select an outside source to buy out their business.
Advisors have an opportunity to step in and help. They should help business owner clients consider all their options and develop a plan tailored to the client's unique scenario.
Advisors should urge business owners to start the succession planning process at least 10 years before they plan to retire, according to BMO, in order to realize the full potential value of the business and ensure a smooth transition.
"Just like creating a business plan or buying insurance, implementing a succession plan well in advance of your [client's] 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, and co-author of The Transition Experience: What Every Canadian Family Business Owner Should Know Beyond Succession Planning. "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."
BMO suggests that advisors get clients to think about such critical questions as:
- Who should succeed the client in their role?
- When would be the ideal time to begin the transition?
- How should the transition be structured?