Succession planning lacking among Ontario’s small businesses

Succession planning for small business owners is not a job that can be rushed, but a new survey suggests that many Ontario employers need to get a move on.  

According to a report by the Northern Policy Institute in partnership with the Ontario Chamber of Commerce and Société Économique de l’Ontario, almost three quarters of business owners in the province had no succession plan in place, even though most expected some kind of transition at the top within the next 15 years. 

Even more worryingly, around one third of owners who planned to retire or sell within the next five years had not even started the process of creating a succession plan. The problem was even more pronounced at employers with fewer than 100 employees, the Thunder Bay-based think-tank found. 

Report author Willam Dunstan said that the entire province has an interest in boosting succession planning preparedness, since poorly managed transitions not only lead to reduced performance and lost value in individual businesses, but also have knock-on negative effects on the wider economy. 

“Economic growth depends on the continued success of existing businesses, not just the creation of new ones” he added. “How we navigate the coming wave of business succession, therefore, will shape our economic future.” 

Succession planning for business founders can, and should be, a long process. Finding or training up the right team to take over an enterprise built from scratch is no easy task, especially if there are complicated family or sibling dynamics at play.  

Owners often make assumptions about both the willingness and ability of their children or other family members to take over, which may or may not turn out to be correct.  

But if you are lucky enough to have a close relative willing and able to step into your shoes at the head of your business, a recent tax change has made it more attractive than ever to keep it in the family.  

Bill C-208, passed by Ottawa lawmakers in 2021, changed the treatment of intergenerational share transfers for small businesses, family farms or fishing corporations under the Income Tax Act.  

The amendments eliminated the effective penalty that previously applied to intra-family transfers because of their characterization as dividends. For parents selling their business interests to children or grandchildren, that opens the door to big tax savings by allowing them to access the lifetime capital gains exemption that was always available when selling up to an unrelated third party. 

Whenever you’re ready to start putting a succession plan together, it’s also a great time to think about getting a broader estate plan in place, so that they can be fully integrated.  

The more complex your assets, the more work it will take to maximize the tax efficiency of your estate. But with the assistance of a good lawyer and accountant, you can put together an estate plan tailored to your individual situation. 

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