Small positives, missed opportunities and big worries for small businesses: Dan Kelly
An aging Canadian population and demand for higher wages are among the factors pressuring small Canadian business owners to sell their companies, according to a seasoned expert in mergers and acquisitions.
Michael Morrow, managing director of merger and acquisitions and capital markets at BDO Canada, is forecasting a rise in the sale of businesses within the next five years compared to the previous half decade.
He attributes that forecast to a lack of succession options for aging Canadian business owners, post-pandemic burnout among entrepreneurs and pressure to match competitive salary expectations amid high cost of living.
“The drivers for business owners to sell that we’re seeing have a lot to do with an aging population and no plans for family members to take over the companies,” Morrow told BNNBloomberg.ca in a telephone interview.
After decades of growing a business and steering it through the pandemic, many owners feel it is time to sell their companies now that their businesses have recovered, Morrow explained. However, many business owners do not have successors in place to take over their operations, he added.
“Another reality that is pushing owners to sell their businesses is the lack of management they have been able to retain since COVID,” Morrow added.
HIGHER WAGE DEMANDS
Demand for higher wages is also posing challenges for small businesses, Morrow said.
Small businesses can’t find the right employees, he said, because qualified candidates are seeking opportunities at larger corporations that can pay higher salaries or offer better employment perks, he explained.
Morrow is observing these trends through clients he works with at BDO Canada which offers accounting, advising and professional services to businesses.
“Someone with 20 to 30 years of expertise in a field is now a highly sought after resource in this labour market and large companies will bid to have them,” Morrow said. “This leaves smaller companies with less competitive options to offer them.”
Another challenge driving business owners to sell is the steep cost of new technology used in business operations today, he added.
“We’re seeing a lot of owners who have been in business for years who are now simply unable or unwilling to invest in the technology needed to bring their companies up to speed. They either lack the skills or don’t want to use their resources to invest in tech, making the option to sell their firm more attractive,” Morrow said.
COST OF LIVING
Canada’s increased cost of living is driving employee decisions and consumer dollars, he said.
“People have to be cautious with their dollars and changing their buying behaviours as they focus more on needs than wants. This is changing where dollars are being spent,” Morrow said.
In this high interest rate environment, he noted that it is more expensive to buy a business today than it was five years ago – but he is still seeing private equity firms or private investors keen to buy a good investment.
As interest rates go down, potentially in 2024 or 2025, Morrow is anticipating that more Canadian businesses will be sold.
“There’s a lot of capital out there looking for good homes,” he said.
Newcomers to Canada often buy Canadian businesses as a way to get started, Dan Kelly, president and chief executive officer of the Canadian Federation of Independent Business (CFIB), told BNNBloomberg.ca on Thursday.
But many small business owners are still worried about money after their operations during the COVID-19 pandemic, he added.
He pointed to an internal survey of CFIB members that revealed only 50 per cent of small Canadian business are bringing in the same sales that they were prior to the pandemic.
"That means only half of our business have recovered, and when the government Canada Emergency Business Account (CEBA) loans come due in January 2024, there will be a lot of who will likely have to give up their businesses at that point," he said.
Kelly is optimistic that a surge of immigrants and young Canadian entrepreneurs will aid in the small business recovery, though he noted that wage pressures and high living costs are weighing tremendously on operators.
"There will be a day of reckoning for hundreds of thousand of business owners who will need to decide to their business will remain viable or not," he said.