Pattie Lovett-Reid: When your business and retirement plans collide
A key consideration in corporations across the country is to always have a succession plan in place. Top executives need to have someone capable to step in in the event they can no longer do their job and lead the organization.
In fact, it is the responsibility of a CEO to, very early on in their tenure, identify to the board who on their executive team would be capable to step in and do the job even on a temporary bases. Grooming, hiring and identifying candidates to allow for business continuity is a fundamental expectation by the board of its executive team.
So why then do small business owners not treat their companies as a larger organization would?
Nearly three quarters of small business owners are planning to retire in the next 10 years, putting over $1.5 trillion in assets in play, according to a new report by the Canadian Federation of Independent Business (CFIB) titled “Getting the Transition Right.” Yet, as highlighted in the report, only eight per cent of small business owners planning to retire have a formal succession plan in place, while 51 per cent have no plan at all. This is a potentially dangerous situation for not only the entrepreneur and their retirement, but employees, communities and Canada’s economy.
In many ways, it is just irresponsible not to have a plan in place.
I’m certain there are many reasons for this:
- No one likes to think about their own demise
- Finding a suitable successor or buyer
And of course there is the tax situation here in Canada. There have been calls for the lifetime capital gains exemption threshold increased to $1 million for all businesses, currently only fishers and farmers have this limit. Also under current rules, business owners pay higher taxes when they sell to a family member then when they sell to a stranger.
The backbone of the Canadian economy is small business and the CFIB is calling for governments, business owners and financial planners work together so the small-and-medium-sized business owners find a solution so their business plan and retirement plan don’t collide.