A new study by the Business Development Bank of Canada (BDC) has found that 41 percent of owners of Canadian small and medium-sized enterprises (SMEs) are likely to leave within the next five years, which is up from the mid-2000s. Most are preparing to retire, with 52 percent expecting to sell or transfer SME interests outside the family. The study found owners preparing to exit are slowing down too soon, with most showing reluctance to take risks to improve performance or undertake growth. The result may be a sale below market value. As part of its recommendations, BDC said an advanced “staging” strategy may lead to more successful exits.
More than 40% of Canadian entrepreneurs will exit their business to retire in the next 5 years: BDC Study
Many entrepreneurs are leaving money on the table when looking to transition from their business
41% of all entrepreneurs are likely to leave their businesses within the next five years and 52% of them expect to sell or transfer their business outside the family.
Entrepreneurs looking to exit are slowing down too soon: 71% are reluctant to take risks to improve their business performance and 52% have little interest in expanding their business, which may cause them to sell below market value.
There is a difference in the findings when it comes to SMEs of 20 employees or more. A very small proportion of these owners (only 3%) intend to liquidate their business, in comparison with all respondents (22%). In addition, they are more willing to grow and seem better prepared to maximize business value. These business owners also have a more realistic idea of the time that the transition process will take.
MONTREAL, Sept. 20, 2017 /CNW Telbec/ – Canadian business owners expecting to sell their business within the next five years could do more to spruce up company value, according to the Business Development Bank of Canada’s (BDC) study on business transitions, released today.
The study points out that these entrepreneurs are underestimating the time needed to complete the transition to new owners and management and sell at the optimal price. Although intentions and attitudes are slightly different for owners of businesses that have 20 or more employees, there are opportunities to seize.
According to BDC’s study, 71% of all sellers are reluctant to take risks to improve their business’s performance and 52% have little interest in expanding their business.
“As for a homeowner putting a house up for sale, entrepreneurs want to realize the highest possible return on selling their business, most often their biggest retirement asset,” states Pierre Cléroux, Chief Economist at BDC. “Our study points out that by not properly preparing and improving company performance, some Canadian entrepreneurs are leaving money on the table,” he adds.
The study finds that four out of ten Canadian entrepreneurs intend to sell their businesses, up from one in three in the mid-2000s. The main reason to move on is retirement. Considering that almost 60% of Canadian small and mid-sized business owners are aged 50 or older, a wave of retirement will create a boom in business transitions.
“Our findings do not augur well for overall business investment in Canada,” adds Pierre Cléroux. “However, some strategies can boost sale price and minimize transitioning hurdles; these tips are particularly relevant, as we are entering a period when sellers will most probably outnumber potential buyers,” he concludes.
BDC’s study offers six steps entrepreneurs can easily take to enhance business value:
1. Keep reinvesting in the business
2. Continue to pursue growth
3. Ensure financial reports are detailed and reliable
4. Make the business stand out from the crowd
5. Focus on quality, not quantity, when looking for buyers—and get help doing so
6. Don’t be afraid to cast a wide net
The study also provides advice on how to ensure a successful business transition and concludes that advanced “staging,” similar to what people do when selling a house, can go a long way when it comes to successfully exiting a business.
BDC’s business transitions study was conducted in partnership with Nielsen, a leading market-research firm who asked 2,500 Canadian entrepreneurs about their succession intentions. The study released today focusses on succession intentions, in order to better understand the choices entrepreneurs face as they intend to move on. A second report, to be published in November, will look at the intentions of potential buyers.
BDC is the only bank devoted exclusively to entrepreneurs. It promotes Canadian entrepreneurship with a focus on small and medium-sized businesses. With its 118 business centres from coast to coast, BDC provides businesses in all industries with financing and advisory services. Its investment arm, BDC Capital, offers equity, venture capital and flexible growth and transition capital solutions. To find out more, visit bdc.ca.
For further information: Flavie Côté, Senior Advisor, Media Relations, BDC, firstname.lastname@example.org, 1-844-625-8321
Photo courtesy of the Business Development Bank of Canada