70% of Canada's private company owners are planning to either sell or transfer their business to the next generation as they approach retirement in the next few years, according to PwC Canada's Once in a lifetime report. Managed properly, this wealth transfer could mobilize a new wave of prosperity and growth, but moving too quickly without proper preparation and planning could cost a business owner their legacy.
Private and family businesses are a critical driver of the Canadian economy, representing nearly two-thirds of the country's gross domestic product. The majority of jobs (70%) in North America are created by private and family businesses—providing work for more than 12 million Canadians. With a large proportion of owners approaching retirement, they are left with the significant and often emotional decision to either sell their business or pass it on to the next generation.
According to the survey, almost half of family business owners plan to pass on management and/or ownership to the next generation. However, 47% of them don't actually have a succession plan in place and 27% have not involved the next generation in preparing for these changes.
"The idea of business succession is a very emotional one for many business owners and their family members. The founding generation built the business with a unique combination of blood, sweat and tears. Now they are reconciling to a future in which someone else will be making decisions about the company's future," says Bill McLean, Partner, Private Company Services Business Advisor, PwC Canada. "It's important for owners to start thinking about what business continuity looks like and how they are going to proactively plan for this going forward. Doing so will enable the business owner to build a successful legacy that will continue for those next-in-line."
70% of family business transfers fail between generations. More than half of those are due to a breakdown in communication and trust, while a quarter fail due to inadequately trained heirs. Business owners must find time to mentor and train their successors to ensure harmony and continuity.
Baby boomers who want to retire earlier seem to be more inclined to sell their business rather than consider a succession plan. The report indicates that 22% of Canadian private and family business owners are planning to sell or float their business. Valuations for Canadian private businesses have been increasing, as has the level of demand for mergers and acquisitions from both domestic as well as international buyers and investors. In this seller's market, a transaction can be complex, both financially and personally.
"For many Canadian private companies, it's difficult to set a price on your life's work" says Miriam Pozza, Partner, Quebec Deals Leader, PwC Canada. "Selling a private company takes time to plan, determine its value and find the right buyer/investor who will take it to the next level, but also uncover the right opportunities."
Selling a business can take many forms depending on how the owner envisions the future of the business. For example, it could be a partial sale or just the selling of certain assets; that way, the owner remains part of the business but with less involvement.