Just when the Canadian tech sector is booming, it seems like many entrepreneurs are looking for ways out of the workforce.
The Business Development Bank of Canada (BDC) conducted a study that found over 40 per cent of Canadian entrepreneurs will retire in the next five years. Fifty-two per cent of entrepreneurs expect to sell or transfer their business outside of the family.
BDC also found that those looking to exit are more or less fine with remaining stagnant until they retire; 71 per cent are reluctant to take risks that may improve their business performance while 52 per cent have little interest in expanding their business, which may result in many of these companies selling for below market value.
Some of these values change when owners are running companies with more than 20 employees. Only 3 per cent of those who own companies with 20 or more workers want to liquidate their assets, compared to 22 per cent for all other study respondents. Those with larger companies seem more willing to grow and maximize business value and have a more realistic idea of what transition means.
The overall message of the study points to entrepreneurs who can do more to spruce up their business before they sell or hand it off and retire. Many are content with just coasting through their exit when they should be working just as hard as normal, if not harder, before departure. This recommendation goes even further if you run a company with less than 20 employees.
“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.”
Roughly 33 per cent of Canadians intended to sell their businesses in the mid-2000s, compared to the 41 per cent reported by BDC in this new study. The main reason to take the next step is retirement, as close to three out of every five Canadian small and medium-sized businesses are owned by people 50 or older.
The study recommends six steps entrepreneurs can take to enhance business value. These are applicable to those new to the game or those looking to sell.
- Keep reinvesting in the business,
- Continue to pursue growth,
- Ensure financial reports are detailed and reliable,
- Make the business stand out from the crowd,
- Focus on quality, not quantity, when looking for buyers—and get help doing so,
- Don’t be afraid to cast a wide net.
The full study, “The Coming Wave of Business Transitions in Canada,” is available here.