The world of entrepreneurship must prepare to be swept away by a major wave of business sales in the next ten years. Takeovers will be fashionable… in a more austere environment.
The polls diverge, but the underlying trend remains. In January, a new report from the Canadian Federation of Independent Business (CFIB) spoke of more than $2 trillion in business assets likely to change hands, with 76% of small business owners planning to pass the baton by now. 10 years.
Two weeks ago, according to the Quebec entrepreneurial index unveiled by Réseau Mentorat and its partners, we could read that six out of ten owners intend to sell or sell their business in the same time interval. However, almost seven out of ten owners aged 50 to 64 “will retire or go out of business in ten years or less, generating a veritable wave of businesses available for transfer”.
In fact, retirement is the main reason given by business leaders to pass the torch (75%), says the CFIB. Exhaustion is mentioned by 22% of them, while 21% say they want to take a step back from their responsibilities. Behind all of this, only one in ten business owners have a formal, written succession plan. Moreover, the entrepreneurial index tells us that “only four in ten owners (38.8%) intending to sell or sell their business one day have a succession plan (formal or not), more among family businesses (45.7 %)”.
A great challenge
For a large majority (90%) of small business owners, the most important factor in transferring the business is protecting employees, followed by getting the best possible price (84%) and finding the right buyer (84%) to ensure business continuity.
Thus, the biggest challenge to succession planning for half of SME owners (54%) is finding a suitable buyer or successor. Nearly half (43%) have difficulty assessing the value of their business and more than a third (39%) say the business is too dependent on the owner in its day-to-day operations, continues CFIB.
Because the context in which this transition takes root can be austere. After remaining stable for two years, the homeownership rate (including the self-employed) fell again in 2022, by 0.3 percentage points, to settle at 5.3% and thus continue a downward trend that began in 2015, highlights the study published by Réseau Mentorat. In addition, with the end of government support and the deterioration of economic conditions, there is a first increase in the overall rate of business closures since 2019. This rate was 11.1% in 2022 and 10% in 2021. As for the failure rate of the takeover process, “more than one person in five (22.8%) has already failed in an attempt to take over a business (8.7% more than once) . Nearly one in five owners (18.3%) have already failed in an attempt to sell/cease their business (6% more than once)”.
The impact of the pandemic
A majority of owners rely on the sale of their business to finance their retirement. However, all these load shedding plans are not without being influenced by COVID-19 and its variants. “Given the severe consequences of the pandemic, it is not surprising that many entrepreneurs have changed their starting plan. This is the case for nearly four in ten owners: 17% have moved ahead of it, while 22% have postponed it for at least a year, often due to heavy pandemic debts or a significant drop in the value of their business during the pandemic,” notes CFIB.
To this can be added the economic situation dominated by inflationary pressures on costs, rising interest rates, an apprehended recession and a labor shortage.
According to another CFIB research report, on average, small business owners work 54 hours a week, the equivalent of an eight-day work week. Owners who reported working more hours due to labor shortages work even more, about 59 hours a week, 20 of which are to compensate for the lack of staff. “In other words, 34% of their hours worked are used to make up for the lack of employees,” summarizes the CFIB.
Overall, we are reminded of the poor business conditions for several years and the constantly rising operating costs. In CFIB’s February Business Barometer, one in two business owners reported having below-average revenues for this time of year, one-third say they are making normal profits and 58% still have a balance to pay on pandemic-related debt.
“The share of SMEs experiencing difficulties remains above the historical average for several types of costs: energy (69%), salaries (63%), insurance (59%) and inputs (45%). In addition, borrowing costs, which have reached an all-time high, are now a challenge for 38% of SMEs. This share has doubled over the past 12 months. »
In real estate, we would speak of an unfavorable market for sellers.