It was long anticipated that the majority of business-owning baby boomers would put their businesses up for sale once reaching retirement age.
As a result, the financial planning community and many accounting firms increased their focus on succession planning, to prepare for what was expected to be a mass exodus from the workforce.
However — despite the fact that the first of the baby boomers turned 65 in 2011 — this rush to retirement has not yet happened.
There are a number of reasons that have contributed to this dearth of retirees.
First, the market crash of 2008, and its resultant loss of investment capital, may have increased the number of baby boomers postponing their retirement, with many choosing to continue working and contributing to their retirement funds. Further, the recession adversely affected the sale value of many businesses, causing many owners to stay on, in hopes that the economic climate would improve and drive their business’ value back up.
Second, due to increased life expectancies and improved access to health care, many baby boomers have the ability, health-wise, to extend their working years well into their 70s, or even later. As such, individuals may not see a reason to give up control of their businesses, particularly if they enjoy their work.
Finally, travel and recreation — traditionally seen as “retirement activities” — are now often enjoyed in tandem with a working life. As a result, business owners do not necessarily feel the need to retire to enjoy these pursuits, particularly when compared with previous generations.
A combination of these, and other reasons, has led many business owners to delay developing a strong business succession plan. Unfortunately, continually deferring the creation and implementation of an individualized transition process may adversely affect the future viability of the business, and result in uncertainty for any potential successors.
Many underestimate the amount of time it takes to implement a succession plan, and a specialist may work with business owners for upwards of five years in order to develop and implement a strong, personalized exit strategy.
Having a plan eases the process of ownership transition, whether it’s through gradual change and strategic preparation, or happens quickly due to unexpected circumstances such as illness or death — events that could result in a fire sale, and a reduced sale price for the business.
Succession planning is a multi-faceted practice; it focuses on the financial aspects of a business, as well as all relevant soft issues, such as interpersonal relationships, or potential problems that may arise from a management transition.
The business owner should be encouraged to play a role in the transition process and, depending on the plan, may continue to play an active (albeit reduced) role in the company after the transition is complete.
Retirement deferral by the baby boomer generation will not be indefinite, and as a result, there will be a spike in the number of businesses being placed on the market. A lack of succession planning for these businesses may result in a drastic loss in business value. Transition and succession planning will help ensure the continued success of these businesses, as well as their important role for the Canadian economy.
More information on succession planning is available from the Treasury Board of Canada Secretariat at www.tbs-sct.gc.ca/gui/suretb-eng.asp or by contacting a succession planning specialist.
Rob Radloff is a chartered accountant, and a senior estate and financial adviser at Covenant Family Wealth Advisers.