Think about this for a minute:
small business is the backbone of the Canadian economy, yet fewer than half of small and medium-sized enterprises (SMEs) in Canada currently have a succession plan in place.
So, to someone such as myself who has concerns about the future of the Canadian economy, this is a little frightening. But there is also an opportunity here….
One Trillion Dollars in Assets to be Transferred, or Lost
In December 2016, I had the pleasure of attending the Conference Board of Canada’s Entrepreneur and Investor Immigration Summit where I was surprised to see discussion of succession planning. This topic was mentioned in several sessions and most notably featured in the presentation by Corinne Pohlmann, Senior Vice-President, National Affairs and Partnerships, of the Canadian Federation of Independent Business (CFIB).
Citing the report Passing on the Business to the Next Generation, based on survey data from its members, Pohlmann reported that fewer than half of small and medium-sized enterprises (SMEs) currently have a succession plan in place. Survey responses are shown in Figure 1, copied from the report.
Close to half of SME owners stated their intention to exit their business within five years, a dramatic increase from the previous CFIB survey on this topic in 2006. More than 75% expected to exit their business within ten years.
According to the CFIB report, about one trillion dollars of business assets could be transferred to the next generation over the next decade.
The most commonly cited reason to exit a business was retirement. Fully 85% of those intending to exit their business stated their intentions to retire. More than one-quarter delayed retirement due to the effects of the 2008-09 recession.
As shown in Figure 2, just over half of the businesses in question were started from scratch by the current owner, and another one-quarter were purchased from a previous owner.
Almost half of CFIB survey respondents stated their intention to sell their business to a buyer or buyers unrelated to them. Yet at the same time, finding a buyer or suitable successor was identified as the biggest obstacle to selling a business (identified by 56% of respondents). Valuing the business was identified as a barrier by 54% of respondents. Agreement on the value of the business is key to a successful transition between seller and buyer.
Can Immigration play a role?
Interestingly, the CFIB report cited above makes no mention of immigrants as a possible source of business purchasing. It does focus on youth as being able to help alleviate this potential crisis, and calls for better education of youth as to the value of business ownership.
Yet by the end of 2016, Corinne Pohlmann of CFIB asked attendees of the Conference Board of Canada Summit:
“How do we use immigration system to help address this issue?”
She noted that some provinces see some immigrants purchasing existing small businesses through provincial nominee programs, notably British Columbia, Prince Edward Island, and Quebec (not Ontario). Yet the criteria for these nominee programs vary widely and can be confusing, hence the need for a national program that can provide consistency for what is a national issue.
Success factors for a business succession immigration program include a system for matching sellers with buyers, a transparent and fair business valuation process, and financing options for prospective buyers.
This is an urgent issue in need of a creative solution. Many immigrants to Canada do have business experience, but supports would be needed for effective business transition.
Canadian small businesses contribute 42% of the country’s private sector gross domestic product, and they employ half of Canada’s private sector labour force, more than five million people.
For further information
For more information on succession planning, see CFIB document “Investing in your future – Building a succession plan” that was written to help entrepreneurs navigate their way through a tricky process.
 Source: CFIB Survey on Business Succession Planning, March 9 to May 4, 2011. The survey was conducted by mail and web. Results are based on 8,303 responses and are statistically accurate to +/-1.1% 19 times out of 20.
Sarah Wayland, Principal Investigator