The future of Family Businesses in Canada

Family businesses in Canada have come a long way from their humble beginnings. Far from simply representing a few scattered enterprises, family business is the backbone of the Canadian economy. At Zeifmans, we understand that statement both professionally and personally. As a second-generation family run business ourselves, it’s no surprise to our team that the research is proving what we’ve known all along: A family’s shared vision for the future creates momentum that’s hard to beat.

Recent studies have shown that[1] that family businesses:

– Provide 55% of all charitable donations
– Employ more than 6 million workers across North America
– Contributed 34% of Canada’s real GDP[2] in 2017
– Account for 63.1% of all private enterprises in Canada
– Make up 65% of the output and 90% of the jobs generated by small and mid-sized companies[3]
– Boast better longevity than widely-held competitors

The unique strength of family-run businesses
A new study from the Rotman School of Business[4] tracked family businesses over the course of 50 years, and compared them to their non-family competitors. 70% of the family businesses they tracked survived at the end of the 50-year period, as compared to just 24% of non-family-controlled widely held companies.

The study found that family businesses experienced decreased turnover at the top, with CEOs of family businesses staying an average of 4 years longer than their counterparts. Public family businesses also held a less volatile position in terms of daily historical share prices. The study concluded that a large part of the success of family businesses was a direct result of their long-term perspective.

The Future of Family Business
As the Baby Boomer generation ages, our culture is facing a number of big changes. One of these changes is the fact that many family business owners are approaching the age where they are considering selling the business, or passing it on to the next generation. The Canadian Federation of Independent Business recently conducted a survey[5] in which 72% of business owners reported their intention to exit their companies within the next decade. These business owners held an estimated $1.5 trillion in assets.

National Bank of Canada Chief Executive Louis Vachon recently discussed this trend at a press conference in New York. As business owners approach retirement, these transactions will be fueling a great deal of financial activity within the economy. He stated that since the majority of these family businesses were very healthy, buyers will frequently take on some debt to fund the transaction. This in turn fuels additional M&A and commercial banking activity.

The importance of succession planning
One of the more well-known statistics about family business is that 70% do not make it to the second generation. And although our own firm can attest to the fact that many family businesses do succeed on to the kids or grandkids, the issue of succession is undeniably an important phase in any business’ life cycle.

Though many family-run businesses assume that the transition to the next generation will go smoothly, the fact is that even the simplest handovers run into complications. This is why it’s essential to establish an effective succession plan, beginning several years prior to the actual transition, and assisted by professionals who understand family business succession well.

Sadly, 47% of family businesses do not have a succession plan, and a further 27% haven’t involved the next generation in preparing for the transition[6]. Communication is key, and without a detailed plan for how the transition will be handled, success is unlikely.

Plan with an expert
Skilled advisory services help family businesses to reach their full economic potential, drive regional growth, and lead Canada’s economy to a more prosperous future. As a second-generation family business, Zeifmans understands the unique needs of Canadian family-run businesses. Our team can help your business succession by helping with:

– Succession planning and implementation
– Structuring business for transitional success
– Taxation strategies
– Navigating the differences between the generations
– Transferring knowledge to create a long-term legacy
– Building a strong, independent board of directors and advisory board

To learn more about how Zeifmans can help your family business successfully enter its next phase, contact a member of our family business team.

[1] Alberta Family Business Institute, “Why Family Business Success Matters in Canada”

[2] Family Enterprise Xchange Foundation, “Family enterprise matters”, https://family-enterprise-xchange.com/res/pub/docs/ResearchReports/FEX_2019_Report_Family_Enterprise_Matters.pdf

[3] Cision, “Family Businesses Generate Almost Half of Canada’s Private Sector GDP and 7 Million Jobs According to New Conference Board of Canada and Family Enterprise Xchange Report”, https://www.newswire.ca/news-releases/family-businesses-generate-almost-half-of-canada-s-private-sector-gdp-and-7-million-jobs-according-to-new-conference-board-of-canada-and-family-enterprise-xchange-report-858070827.html

[4] Financial Post, “Family Businesses Survive Longer and Offer Less Investment Risk, Rotman Study Finds”, https://business.financialpost.com/news/fp-street/family-businesses-survive-longer-and-offer-less-investment-risk-rotman-study-finds

[5] Financial Post, “As Boomers Cash Out of Their Businesses, the Big Banks are Cashing in Through Deal Financing”, https://business.financialpost.com/news/fp-street/small-businesses-big-targets

[6] BC Business, “Exit Plan: How to Sell or Transfer Your Business Successfully”, https://www.bcbusiness.ca/Exit-plan-how-to-sell-or-transfer-your-business-successfully