With ongoing uncertainty caused by the COVID-19 pandemic, more than a third (37%) of business owners surveyed in Canada wish they could retire, transition or sell their business but are not prepared, finds a recent poll by KPMG in Canada.
“With the COVID-19 pandemic, many business owners have been forced to make tough decisions around investments needed to manage through the crisis and beyond,” said Yannick Archambault, national family office leader for KPMG in Canada.
“Given the ongoing challenges, more than a third wish they could sell or transition their business to the next generation today.”
Poll findings revealed that:
- 24% of respondents who do not have an exit plan but want to leave within one to two years, regret not selling or transitioning their business before the pandemic.
- 64% are adopting digital and emerging technologies as a result of COVID-19.
- 60% do not have audited financial statements.
- 76% do not have a governance framework or structure in place.
- 70% believe a more tech savvy generation of leaders is needed to succeed in the new reality.
“For family business owners, the readiness of the next generation to assume control of the business is a key consideration when thinking of retirement,” said Archambault. “Most business owners need to feel confident their business is in safe hands with the next generation or a strategic third-party, before making the decision to sell or transition the business.
“We also heard from entrepreneurs about the growing importance of technology, a lesson driven home by the realities of working during a pandemic. Most entrepreneurs (78%) said companies must go digital to compete, and 70% believe a more tech savvy generation of leaders is needed to succeed in the new business reality.”
The future is digital: The poll also found that business owners who plan to exit within the next 24 months, but lack formal plans, have also made minimal investments in technology. In fact, 48% of these owners said they have made no recent investments in technology. While only 8% invested in digital technology to facilitate online sales, services and payments, far below the national average of 27%.
“Now more than ever, businesses need to be proactive and invest in digital and emerging technologies, whether to facilitate remote work or online sales, services and support,” said Mary Jo Fedy, national leader, KPMG Enterprise. “The prevailing belief that digital transformation is driven by the next generation of leaders could also influence future thinking about succession planning.”
Fedy added that the pandemic may have also put “some transitions on hold because valuations are uncertain and different market dynamics are now at play. Businesses need to be prepared for the unexpected.”
According to KPMG, there are six steps to a successful business transition:
- Plan for the Future– Make preparations well in advance. Most major decisions require multi-year planning, so don’t delay. If you are a family business owner, the first step is to decide whether the business should continue as family-owned entity or will be sold to non-family members.
- Prepare Your Business –KPMG’s survey revealed that many business owners do not have audited financial statements. Review and make sure the business’s financial records, contracts, and corporate documents are up to date and accurate, and that strong governance frameworks are in place.
- Get a Valuation –The pandemic is impacting the valuation of businesses and M&A activity globally. You may want an independent assessment of your business value and, prior to a sale, implement operating and financial performance improvements that lead to a higher sale price.
- Prepare Your Family –Include family members early in the planning process. Many families rely on a family office to foster communications and family unity. Consider what the transition or sale will mean to you and your family. What does life look like for you and the family after the exit? How will you oversee the family capital and financial matters?
- Groom Your Successor – Succession planning can be one of the most challenging aspects of owning a family business, yet it is critically important. KPMG and the Ivey Business School teamed up to create the Family Shift program, which helps prepare next generation leaders. Many founders will continue to act as an advisor to their successor even after handing over the reins.
- Assemble a Strong Team – Work with a team of professional advisors in mergers and acquisitions, corporate finance, tax and law who understand the current market and can help you better structure the transaction and engage with prospective buyers. Your team should be capable of taking into account all the financial and non-financial implications involved and ensure you get the best price for your business.
KPMG polled 500 Canadian companies in late September, when COVID-19 cases resurged in Canada.