Transition issues loom for many businesses

Significant ownership changes lie ahead for Canada’s private sector, according to executive-level chartered accountants surveyed as part of the latest CICA/RBC Business Monitor.

Almost one-third (31%) of private sector CAs surveyed expect their company to have a new owner in the next five years. They indicated that the top challenge to succession planning is receiving the appropriate value for their business (35%), followed by finding the right successor (28%).

“When it comes to transferring or selling their companies, business owners want to make sure that they get the best value for their company,” says Christianne Paris, vice-president, client & business strategy, RBC Royal Bank. “They also want to be confident that their business is in capable hands in order to continue their legacy, which is why it’s important to start the process of grooming a successor early on and set realistic expectations.”

Among those expecting new ownership within five years, selling to a third party is the most common method anticipated for transitioning the business (47%), followed by transferring the business to family members (13%). Only 8% believe their company will go public within the next five years.

The study found that many companies expecting an ownership change within five years have not yet planned for the next stage of their business. Eighteen percent have yet to initiate discussions on succession, while 42% have only discussed the matter. One-in-five (20%) indicated that a formal plan has been initiated, but only 14% said a succession plan has been fully completed.

“Successfully transitioning a business requires considerable advanced planning, so it will be important for companies to act soon to avoid leaving money on the table,” says Anthony Maiorino, vice-president and head, RBC Wealth Management Services. “Owners who plan in advance are better positioned to provide for their family’s future, minimize future tax liability and improve the financial stability of the business.”