Why Do So Few Businesses Have a Succession Plan in Place?

Laura Couvrette • July 15, 2019
Laura Couvrette

According to research conducted by the Ministry of Economic Development and Growth, only 9.8% of Canadian Small and Medium Enterprise (SME) owners have a formal written succession plan. This is surprising, given what we know about the demographics of our population and that there is a significant number of business owners who will sell or transition their business as they approach retirement age.

What Factors Hinder the Succession Planning Process?

A study by the Canadian Federation of Independent Business has indicated that the most commonly reported barrier to succession planning is identifying a suitable buyer or successor, with 56% of respondents expressing this as a primary concern.

Another common reason is a lack of managerial talent and the business’ ongoing dependence on the owner’s active involvement, with 40% of respondents expressing doubt that their business would be able to operate in their absence.

How Can an Owner Overcome These Barriers?

Building a succession plan starts with having a clear understanding of your personal goals and how they relate to the business objectives. Are you looking to maximize value and sell your business to a third party so that you can enjoy retirement? Are you hoping to build a family legacy and transition to the next generation? Do you have key employees that are interested in and capable of running the business? Having a clear understanding of your goals will inform the next steps and the basis for your plan. It is an important exercise to undertake as it may highlight weaknesses in your organizational structure that should be addressed.

What Happens If You Don’t Plan for Succession?

Strong and competent leadership is extremely important for every business, but for small and medium enterprises, in particular, it can be a challenge to find the right talent. Organizations that take the time to review and groom their talent and ensure that the right people are in place to deliver on the business’ objectives will ultimately benefit from enhanced business value.

If your goal is to transition ownership to the next generation, a ‘surprise succession plan’ can cause a great deal of confusion and infighting among prospective successors, which can have a devastating effect on the business itself. A formal succession plan will ensure that each family member understands their long-term role in the ongoing operations and solidify your legacy.

Succession plans are also useful for covering temporary leave due to illness or personal emergency, as they formalize the hierarchy of authority and ensures that your business can function in a short-term absence.

Make sure that your succession plan is strategic and aligned with your goals. Call us to speak with one of our business advisors.