If your client owns a business and is near retirement age, they may need help developing an exit strategy—something advisors must proactively address.
An IPC poll finds that 42% of Canadian small-business owners are unsure about their futures and retirement plans. However, 48% of poll respondents say they don’t intend to seek the help of a financial advisor for business succession planning, so it will be up to advisors to help clients take action.
“Succession planning for small-business owners is a fundamental challenge,” said Sam Febbraro, executive vice-president of IPC, in a release. “There is no cookie-cutter approach to developing a business succession plan; but for any small business owner, it is important to plan things early on and not in a hurry or at the last minute when emotions are high.”
For many, the time to act is now.
The Business Development Bank of Canada estimated that almost 60% of Canada’s small and medium-sized business owners are aged 50 or older, and four out of 10 are likely to leave their businesses within the next five years. While many entrepreneurs are approaching retirement age, 21% are unsure if they have enough money to retire and if their businesses will attract potential buyers.
When it comes to business transition, the poll finds that what small-business owners fear most is heirs potentially being unwilling to take over their businesses. This is particularly true among high-net-worth entrepreneurs with more than $1 million in investable assets. Of these, 34% say they worry that heirs are uninterested, slightly higher than the 28% national average of business owners who share the same sentiment.
Overall, about one-third of small-business owners prefer to pass the business on to heirs or family members. Most prefer to sell their businesses (42%), and 27% would like to shut down their businesses.
Other key findings:
- Those with more than $1 million in assets are the most likely to sell their businesses (51%), while those with $100,000 to less than $250,000 in assets are most likely to pass it on to heirs (39%).
- More than one-third (36%) don’t plan to give up ownership until they’re not well enough to manage their businesses.
- Only 36% reported that their families were aware of their succession plans.
About the poll: A total of 300 respondents across Canada were interviewed by the Environics Research Group using an online methodology from July 24 to Aug. 2, 2018. To qualify for the survey, respondents had to be self-employed, full-time small-business owners with up to 50 employees, as well as be at least 18 years old.