When business owners inevitably walk out the door for the last time and into some form of retirement, or new adventure, they usually expect and hope to leave behind a heathy, sustainable business under the direction of capable new owners.
If they have planned their exit well in advance and accessed the expertise required to develop and execute a smart plan, this is a reasonable scenario to look forward to. It’s going to be a win-win result when the owner can transition into a financially secure retirement and the new owners can take over a business with future growth potential.
It should also be noted it’s a big win for the economy as well, because a healthy business will generate growth in employment and prosperity well into the future.
On the flip side, when an owner decides to suddenly sell the business without adequate preparation, or if an owner is forced to leave due to an unforeseen event, such as being stricken with a serious illness, it can be a worst-case scenario for all involved.
Depending on the situation, the business might have to be sold at a steep discount to its potential value. If the business cannot be sold as a going concern it may be necessary to simply close the doors and sell off the assets at “fire sale” prices. This will result in a serious erosion of value for the owners and their families, and negative repercussions for employees, suppliers and customers. These negative outcomes are amplified in rural areas where sustaining economic growth is a constant challenge.
In Canada, Provinces with rapidly aging populations are beginning to sit up and take notice of the economic risk this represents. In Quebec, for example, 60 per cent of small businesses will change hands in the next decade and only 10 per cent have a plan. Recognizing that the majority of business owners need help to achieve a smooth transition, Quebec is mobilizing private and public resources to address the problem:
“Quebec has become something of a pioneer in addressing it. Policy makers, universities and leading executives are pushing business owners into readying a sale plan in advance – and ensuring qualified people are ready to take charge.” (Financial Post – March 23, 2017)
The initiatives underway include a program at Concordia University that teaches students how to take over a business, a $250-million fund set up by Caisse de Depot to invest in companies planning a transition and a program offered to children and employees of owners by the Business Families Foundation (Montreal).
In Nova Scotia, where our rural communities are struggling to stay alive, there is little if any attention paid to this serious economic issue. Based on preliminary research and inquiries with the Province, it is simply not on the economic development “radar screen.”
The Ivany Report of 2014 (Now or Never: An Urgent Call to Action for Nova Scotians) brought forward a collection of insightful strategies to guide the Province’s economic development policies and practices.
The report highlights the importance of supporting start-up and high growth businesses, as well as businesses that export… all solid strategies, but it makes no direct mention of this demographic phenomenon. There are no support mechanisms in place to assist retiring business owners with the transition of ownership. Nor is there any research being done to gather and analyse the data that would inform the development of an effective strategy.
The support for start-up businesses makes sense, but it must be remembered that they are famously risky undertakings and failure rates are high. An economic development strategy that fails to support the sustainability and growth of existing businesses is flawed.
Ian MacFadden is co-founder and Partner of exitRITE Planning Services. His column appears the first Friday of each month. You can reach Ian at [email protected] or go to www.exitrite.com
