Find more advice on running a small business, feature stories, links and tools on our Small Business page.Many Canadian entrepreneurs who have spent their lives building their businesses don't have a succession plan even though they know the value of having one, a new report suggests.
A Harris/Decima report commissioned for the Bank of Montreal says more than half of the businesses polled are in the later stages of development, yet only 21 per cent of the owners have named a successor.
Forty per cent of owners don't have a succession plan because they believe it is too early in the business's development to have one. More recent owners, however, see the value in having a formal plan in place earlier in the business cycle.
"These findings reflect the mindset of a typical entrepreneur," said Gail Cocker, senior vice-president of commercial banking with BMO.
"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," Cocker said.
Many owners procrastinate in developing a succession plan because they simply don't know where to start, says Sean Foran, co-author of a book on succession planning, Succession Stories from the Front Line.
"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," Foran said.
A study of estate transitions in the United States by The Williams Group, a wealth transition consulting company, has found that 70 per cent of transitions fail and only 30 per cent succeed.
Sixty per cent of the failures, the study found, are due to a breakdown of trust and communication within the family.
Twenty-five per cent are caused by not preparing the heirs properly for the responsibility they will inherit, and the rest fail from other causes such as tax, legal, accounting and other issues.
Almost 40 per cent of the businesses in the BMO survey said their ideal succession plan would involve selling their business to an outside party. Only 17 per cent said they would sell the business to a family member.
One quarter of respondents said they had no family members interested in taking over the business and 17 per cent said they had no family members who were qualified to take it over.
There are many options and issues that owners have to take into account when deciding when and how to transition their business.
On the most basic level, there are three transition options available – keep the business, sell it, or close it down. There is a new trend developing in business transitioning called the "unintended seller."
"The unintended seller is a business owner who had no intention of selling but receives an offer from a venture capital or private equity company wanting to buy the business," said Foran.
