Posted Thursday November 19, 2020

Business Transitions

More than a third of entrepreneurs wish they could sell or retire but aren’t prepared: KPMG in Canada Poll

Pandemic underscores urgent need for business owners to have a plan for succession and business transition

With ongoing uncertainty caused by the COVID-19 pandemic, more than a third (37 per cent) of business owners surveyed in Canada wish they could retire, transition or sell their business but are not prepared, finds a recent poll by KPMG in Canada.

“With the COVID-19 pandemic, many business owners have been forced to make tough decisions around investments needed to manage through the crisis and beyond,” says Yannick Archambault, national family office leader for KPMG in Canada. “Given the ongoing challenges, more than a third wish they could sell or transition their business to the next generation today.

“But these kinds of decisions require serious planning and the persistent economic uncertainty posed by the pandemic has accelerated the normal planning timeframe for these decisions. As a result, there is a greater urgency today to have robust, forward-looking plans in place and solidify leadership and governance structures to protect the business and facilitate a transition.”

Key poll findings:

24 per cent of respondents who don’t have an exit plan but want to leave within one to two years, regret not selling or transitioning their business before the pandemic.
• 64 per cent are adopting digital and emerging technologies as a result of COVID-19.
• 60 per cent do not have audited financial statements.
• 76 per cent do not have a governance framework or structure in place.
• 70 per cent believe a more tech savvy generation of leaders is needed to succeed in the new reality.

To sell or transition the business

“For family business owners, the readiness of the next generation to assume control of the business is a key consideration when thinking of retirement,” says Mr. Archambault. “Most business owners need to feel confident their business is in safe hands with the next generation or a strategic third-party, before making the decision to sell or transition the business. Overall, our poll findings reveal that 28 per cent of respondents are ready to retire or sell the business but feel obliged to stay on because their successor is not prepared to take over the business. This may or may not be a family member who has been involved in the running of the business.”

“We also heard from entrepreneurs about the growing importance of technology, a lesson driven home by the realities of working during a pandemic. Most entrepreneurs (78 per cent) said companies must go digital to compete, and 70 per cent believe a more tech savvy generation of leaders is needed to succeed in the new business reality,” added Mr. Archambault.

The future is digital

The poll also reveals that business owners who plan to exit within the next 24 months, but lack formal plans, have also made minimal investments in technology. In fact, 48 per cent of these owners said they’ve made no recent investments in technology. While only eight per cent invested in digital technology to facilitate online sales / services / payments, far below the national average of 27 per cent.

“Now more than ever, businesses need to be proactive and invest in digital and emerging technologies, whether to facilitate remote work or online sales, services and support,” says Mary Jo Fedy, National Leader, KPMG Enterprise. “The prevailing belief that digital transformation is driven by the next generation of leaders could also influence future thinking about succession planning.”

According to Ms. Fedy, the pandemic may have also put some transitions on hold because valuations are uncertain and different market dynamics are now at play. “Businesses need to be prepared for the unexpected.”

Six Steps to a Successful Business Transition

Plan for the Future – Make preparations well in advance. Most major decisions require multi-year planning, so don’t delay. If you are a family business owner, the first step is to decide whether the business should continue as family-owned entity or will be sold to non-family members.

Prepare Your Business –KPMG’s survey revealed that many business owners do not have audited financial statements. Review and make sure the business’s financial records, contracts, and corporate documents are up to date and accurate, and that strong governance frameworks are in place.

Get a Valuation –The pandemic is impacting the valuation of businesses and M&A activity globally. You may want an independent assessment of your business value and, prior to a sale, implement operating and financial performance improvements that lead to a higher sale price.

Prepare Your Family –Include family members early in the planning process. Many families rely on a family office to foster communications and family unity. Consider what the transition or sale will mean to you and your family. What does life look like for you and the family after the exit? How will you oversee the family capital and financial matters?

Groom Your Successor - Succession planning can be one of the most challenging aspects of owning a family business, yet it’s critically important. KPMG and the Ivey Business School teamed up to create the Family Shift program, which helps prepare next generation leaders. Many founders will continue to act as an advisor to their successor even after handing over the reins.

Assemble a Strong Team – Work with a team of professional advisors in mergers and acquisitions, corporate finance, tax and law who understand the current market and can help you better structure the transaction and engage with prospective buyers. Your team should be capable of taking into account all the financial and non-financial implications involved and ensure you get the best price for your business.


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ISSN 0824-45
Copyright, 2020

Publisher: Exchange Business Communication Inc., PO Box 248, Waterloo, Ontario, Canada

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