The fact is out there that nearly three quarters of small business owners in Canada will exit their businesses in the next 10 years and be faced with the emotional challenge of finding someone qualified to step into their business as they hand over the reins to someone else, and accept that they will no longer be making the key decisions for the business future and putting their business in the hands of someone else to take care of and grow what they in most cases have built from the ground up.
Finding a successor is one challenge, then there are the tax regulation challenges, according to research by the Canadian Federation of Independent Business these business asset transfers could be potentially worth more than $1.5 trillion. If the business owner would like to have their children or a member of their family to take over, they will find the current tax rules stipulate that small business owners will have to pay more taxes if they sell their business to a family member than if they were to sell to a third party, so this choice is not an easy one to many entrepreneurs.
Small business entrepreneurs dedicate most of their life to their business and building their brand. They put all their time, savings and energy into their business for many years, so it can thrive and truly succeed, so that they can pass it on to their children to carry on the business and want it to grow for many generations to come. But if they want to pass the business to the next generation their children have to be interested and dedicated to running the business, if they are not then it is better to look at handing the reins of the business over to an outside party to run the business. However, finding that person is not an easy process and does require a great deal of effort.
Small business drives the economy and is responsible for the majority of the job growth in Canada and the US for that matter, so it is very important that these businesses remain local in order to employee people in their communities. We have the time to prepare and help entrepreneurs find successors to take over their business if all economic stakeholders (including entrepreneurs, governments, financial institutions, financial advisors) work together.
Of course, entrepreneurs also have a role to play. Owners have to start planning early, even if it’s hard to think about leaving. It may not be a top priority compared with all the small and large emergencies that are a regular part of running a small business, but one of the keys to success is to have a formal written succession plan and a variety of exit strategies in order to prepare for the unexpected. The more carefully the transition is planned, the higher the chances of success. And a successful handover means that jobs will be kept — and more could even be created.
By Jamie Barrie