A recent survey has found that 65% of business owners do not have a succession plan, and about three in four have saved less than $100,000 for their retirement.
BMO Wealth Management released a report yesterday that looks at how Canadian private business owners are planning to fund their retirement. It reveals that 72% of the respondents have set aside less than $100,000. Savings rates are low even among those in the oldest demographic (between the ages of 45 and 65), 61% of whom have less than $100,000.
Will owners be able to rely on the proceeds from selling their business to fund their retirement? For many, this seems unlikely. When asked what they could get for their business if it were sold today, 30% estimated that it was worth less than $100,000 and another 26% valued it at between $100,000 and $500,000. Just 19% of those surveyed believed their business was worth more than $1,000,000.
There is also the problem of orchestrating their exit. While 40% of owners hope to sell their firm (36% to a third party, 4% to a family member), 15% expect to transfer it at no cost to a family member and 12% plan to wind down and simply close shop. The remaining 33% don't know what they will do.
"It is worth noting that business owners between the ages of 45 and 64 were twice as likely to consider winding down their business rather than try to sell to an unrelated person," reads the report. "The views of this group are significant because half of all business owners are in this age range."
Overall, a mere 8% of business owners have a written, up-to-date business succession plan and another 4% say they have a written plan but that it is out of date. Of the rest, 23% have an informal plan in their heads and 65% admit they do not have any kind of business succession plan.
The complete report is available on the BMO web site.
For help exploring your possibilities and understanding your course to developing your retirement contingency plan, call Four Points Financial Solutions today at 1-866-235-0004.