Elizabeth MacRae is president of Commercial Ventures.
What is Commercial Ventures and what do you do?
MacRae: We are a boutique consulting firm, with a holistic model, devoted to helping small business owners plan, prepare and execute a sale of their business.
How prepared are most business owners to exit their businesses in the future?
MacRae: Many are not prepared at all. The two most common words we hear from business owners are: “I’m tired.” We can very quickly identify that they waited too long to seek help or tried to sell/transition on their own, with no plan, maybe no successors, or little understanding of what external buyers are wanting in a business.
People or groups who are buying businesses usually have specific criteria that a business must meet before they will consider it for an acquisition. If your business doesn’t meet the market demand, you can have difficulty selling or end up accepting much less than you planned to accept for your business.
Alternatively, succession planning to internal employees or family takes strategic planning and articulated communication, over time.
What do current demographics tell you about the future and the number of business owners that will be exiting their businesses?
MacRae: Studies vary slightly but generally share similar results. According to the CFIB (Canadian Federation of Independent Business), 72 per cent of small business owners intend to exit their business in the next 10 years. ATB Financial reports 60 per cent of business owners have no succession plan. A 2017 BDC report states 41 per cent of entrepreneurs are likely to leave their businesses within the next five years and nearly two in five business owners who expect to sell to outside buyers within the next five years appear to have done little or nothing to spruce up their financial reporting.
The statistics are similar internationally as well. Australian statistics show 81 per cent of their business owners plan to retire in the next 10 years and 53 per cent of them have no exit strategy. South of the border, studies show 60 per cent of small business owners planning to leave their business in the next 10 years don’t have an exit plan. And sadly, 20 to 30 per cent of businesses that ‘go to market’ to find an outside buyer don’t reach a sale.
Why is it important for business owners to start thinking about this well in advance and what should they do?
MacRae: Time. The most important reason is due to time. It takes time to implement or refine elements of your business that help to maximize value. It takes time to ensure you have a proper plan in place to minimize taxes upon the sale. It takes time to assemble a team of advisers who are experienced and compatible with your company based on its size, intricacies and the strategies you intend to execute, whether they be succession or an external sale. And it takes time for the business owner to wrap their head around the options and strategies that are fully available to them. We highly encourage people to begin to educate themselves first!
The other reason is due to unpredictability. You can plan for an exit, but you can’t always predict when you will exit. The strategy of exit planning is ballooned by the anticipation of exits due to retirement, but we interact with many owners who are choosing to leave for other reasons such as change in lifestyle, encore careers, other business pursuits, relocation or health concerns. Some of these factors can be anticipated and others can’t.
In an ideal situation, a business is grown with a sale in mind either from inception or maturity. This strategy will allow the owner a more successful exit at any time because they have built the business in a way that it meets the demand of the market or is easily transferable should something happen to the owner. Understanding what makes a business more saleable also helps an owner to have a healthy mindset about the relationship they have with their business and more freedom while running it.
Do you think more younger business owners are exiting their businesses to start new ones?
MacRae: I do. Younger generations are more project-oriented. We’ve noticed a trend in the age of our clients but also the length of time they’ve owned their businesses. Owners who aren’t yet ready to retire but have been in business for more than 10 years are lamenting the same burnout we identify in our retiring owners.
If not of retirement age, yes, they will often start or buy another business. It’s a gravitation pull for some people – once you drink the Kool-Aid, some can’t go back to being employees. We also hear of more and more business owners under 40 who transition the business between five and 10 years of ownership to jump to the next project and reinvest the capital from their previous sale.
This is not based on any studies, but observations we have made in the market and from our own client base.
It’s an exciting time to be a young entrepreneur. More individuals are catching onto the opportunity of entrepreneurship through acquisition and with the changes in technology many retiring owners are hesitant to invest in adapting their businesses to new trends in digital marketing, the use of technology or moving into other markets. This can create great opportunity for young, ambitious buyers who can implement new initiatives in some of these businesses just through modern tools.
It’s very rewarding work to be part of helping one person move on from their company and be witness to a new owner coming in with excitement and renewed energy, and knowing that we’ve been a part of retaining the jobs of the employees. It’s not all sunshine and roses but when the transition is successful it’s an honour to have been part of the process.
– Mario Toneguzzi