Retiring business owners to transfer $1.9 trillion in business assets in the next five years - largest turnover of economic

Retiring business owners to transfer $1.9 trillion in business assets in the 
next five years - largest turnover of economic control in Canadian history: 
CIBC 
Transfer poses risks to Canadian economy via reduced productivity, job losses, 
premature sales and increased bankruptcy rates 
TORONTO, Nov. 13, 2012 /CNW/ - The owners of Canada's small- and medium-sized 
businesses are set to retire in record numbers and this will see $1.9 trillion 
in business assets change hands in the next five years alone which could pose 
significant risk for the Canadian economy, finds a new report from CIBC World 
Markets. 
The report notes that 310,000 business owners, close to 30 per cent of small- 
and medium-sized businesses in Canada, will exit ownership or transfer control 
of their companies within five years. Within the next ten years one-half, or 
550,000, of owners will exit their business. 
"The economic implications of the accelerated pace at which firms are changing 
hands should not be underestimated," says CIBC Deputy Chief Economist Benjamin 
Tal. "The demographic realities of Canada in general, and the small and 
medium-sized enterprises in particular, suggest that succession planning is 
increasingly becoming a critical issue. In the coming five years, an estimated 
$1.9 trillion in business assets are poised to change hands — the largest 
turnover of economic control on record. And by 2022, this number will mushroom 
to no less than $3.7 trillion. 
"Given this magnitude, a faulty or badly executed succession planning process 
could have a ripple effect throughout the Canadian economy via reduced 
productivity, job losses, premature sales and increased bankruptcy rates. This 
potential cost is significant. The firms that will change ownership in the 
coming five years currently employ close to two million people and account for 
no less than 15 per cent of GDP." 
Mr. Tal notes that these numbers highlight that succession planning is no 
longer just a micro issue that impacts the businesses involved, but also, 
increasingly, a macroeconomic issue, capable of affecting the growth potential 
of the economy as a whole. 
"As long as the number of businesses that face transition issues is small 
relative to the size of the economy, the lack of succession planning is mostly 
a micro issue impacting the business itself with little consequence to the 
economy as a whole. But the changing demographic landscape of Canada suggests 
that this is no longer the case. The sheer number of business owners that will 
retire in the coming decade is turning this micro issue into a potentially 
damaging macro problem." 
The challenge, says Mr. Tal, is getting the country's small- and medium-sized 
business owners to turn their attention to this growing issue. Survey after 
survey has shown that business owners are ill-prepared for the inevitable 
ownership transition that is quickly approaching. No less than 250,000 
business owners, or one-fifth of all businesses with employees, are now aged 
55 and over. And their number has risen by four per cent a year over the past 
decade. That's more than double the rate seen in the 1990s. By the end of the 
decade, close to 350,000 business owners will be over the age of 55. 
While succession planning is the norm for large corporations, for small and 
mid-sized companies it is often an overwhelming issue that is too often dealt 
with only in emergency situations such as the death or illness of an 
owner/partner or when a new partnership is needed following a cash flow crisis. 
The reasons why succession planning is not addressed include limited 
resources, a struggle to maintain or improve profitability along with some 
softer factors such as lack of common vision among partners, lack of an 
effective communication framework and difficulty dealing with conflicts 
between interested parties. 
"More often than not, the inability to agree on a well-defined succession plan 
is an indicator of even deeper problems such as the lack of a clear business 
plan," adds Mr. Tal. "And the cost to the business is not trivial. In addition 
to putting the business at risk by alienating potential successors and buyers, 
it can lead to a loss of focus by owners, causing inefficiencies and profit 
loss. Owners may fail to realize the full value of their firm, and it may be 
difficult to obtain long-term financing, further damaging the growth potential 
of the firm." 
While the issue of a lack of succession planning is not new, Canadian firms 
have yet to put serious focus on addressing the issue. Close to 60 per cent of 
business owners aged 55 to 64 have yet to start discussing their exit plans 
with their family or business partners. "At this stage of the game, a small 
businesses' principle strength — the reliance on the human capital of the 
owner in almost every aspect of the business — is also becoming its primary 
weakness. Adequate succession planning requires time and is often measured in 
years, not days or months." 
The complete CIBC World Markets report is available at: 
http://research.cibcwm.com/economic_public/download/IF-20121113.pdf 
CIBC's wholesale banking business provides a range of integrated credit and 
capital markets products, investment banking, and merchant banking to clients 
in key financial markets in North America and around the world. We provide 
innovative capital solutions and advisory expertise across a wide range of 
industries as well as top-ranked research for our corporate, government and 
institutional clients. 
Benjamin Tal, Deputy Chief Economist, CIBC World Markets Inc. at (416)  
956-3698,benjamin.tal@cibc.ca or Kevin dove, Communications and Public 
Affairs at 416-980-48358,kevin.dove@cibc.ca. 
SOURCE: CIBC 
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CO: CIBC World Markets
ST: Ontario
NI: FIN ECO  
-0- Nov/13/2012 12:30 GMT