When you retire, are you thinking of leaving your business to a family member or third party? Are you planning on selling it? Closing it? Have you decided? According to the TD Waterhouse Business Succession Poll, Canadian small business owners haven’t fully prepared for the day when they will no longer be running their business: 76% of small business owners polled admitted they don’t have a succession plan, which may cause major complications down the line.
“Small business owners typically spend a lifetime building their business but little to no time creating a succession plan,” says Carl Smith, Regional Vice President and Market Leader, TD Waterhouse, Private Client Services. “Without a formal succession plan in place you could miss out on important tax advantages or getting the maximum value for your business. It’s disappointing to see how few Canadian small business owners have a succession plan to allow them to step back from running the business when they want to retire.”
According to small business owners surveyed, the top reasons they don’t have a succession plan for their business are that they are still trying to figure out what their plan will be (45%), or that they just haven’t gotten around to it yet (31%).
Respondents were fairly divided in their intentions for their business when they retire, with 23% planning to close it, 20% planning to sell their business to a third party, and 18% planning on transferring to a family member. Over one quarter (27%) were unsure about what they will do when it comes time to retire.
“Regardless of your exit strategy, it’s essential to have a formal and comprehensive plan in place to allow for a successful transition, so all the hard work you’ve put into the business is reflected when you’re no longer there,” says Smith. “While you may think that you don’t need anything formal if you are passing your business to a family member, a formal plan is still necessary to ensure a smooth transition.”
Other common concerns from small business owners about succession planning are that it’s complex, or they are unsure about what should be included. Your succession plan should include a number of things: your business plan, goals, details of the transition, and tax plans. “TD Waterhouse has succession planning experts who act as quarterbacks of the planning process — we can help you work with the various parties, such as accountants and lawyers, so that you can focus on running your business,” says Smith.
Forty-six percent of those with a succession plan developed it within the first ten years of business ownership, and half developed their plan before they started planning their retirement.
“Ideally, small business owners should create a formal succession plan as early as possible, at least five to ten years ahead of when they want to retire,” says Smith. “We encourage small business owners without a succession plan to visit their financial institution today. It takes very little time to get started and the benefits will be immeasurable when it’s time to move away from your business.”
Many small business owners have been burning the candle at both ends for many years, so retirement may come as a significant, and welcome, lifestyle change. However, small business owners polled know exactly how they want to spend their time: 45% said they plan on spending time with friends and family and 46% said they plan on travelling.
“After years of hard work, small business owners deserve a truly relaxing retirement,” adds Smith. “It’s essential to have a formalized plan in order to efficiently and effectively transition your business, so you can attain the maximum value, minimize taxes, and spend your golden years focusing on what you want to, not your former business.”
From October 3 – 6, 2011, an online survey was conducted among a sample of 609 Canadian small-business owners who are Angus Reid Forum panel members. The margin of error on the full base — which measures sampling variability — is +/- 3.91%. Discrepancies in or between totals are due to rounding.