Strategies for Succession and Continuity in Canadian Entrepreneurship
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.
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.
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.
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.
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.
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.
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
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