KPMG study reveals that most family businesses are accelerating succession planning

TORONTO — Nearly eight in 10 (79 per cent) Canadian family business leaders are speeding up their transition and leadership succession plans due to growing pressures both outside and inside the family, finds a new KPMG in Canada survey.

These leaders cited a constantly changing business and economic landscape, disruptive technologies, climate realities and tax changes, as well as complex family dynamics as the drivers of their plans to accelerate the handover of their companies.

The findings reflect the views of 285 family business leaders included in the KPMG Private Enterprise™ Business Survey of 700 small- and medium-sized businesses (SMBs). The survey reaffirmed a significant demographic shift now underway in Canada, with more than seven in 10 (73 per cent) expecting to transition to new leadership within three to five years.

“As a generation of family business founders and owners decide whether or not to step down as CEO, difficult decisions about what should happen to the business, next generation readiness, and how best to preserve family wealth and legacy all need to be carefully examined,” says Yannick Archambault, Partner, National Leader, KPMG Family Office. “Successful families that take a multidisciplinary approach to addressing emerging challenges and have been proactively preparing the business, their family and their successors will be in a better position to choose the optimal path forward.”

Survey findings

• 79 per cent are accelerating succession plans for multiple reasons
• 73 per cent expect to transition the business to new leadership within the next three to five years
• Seven in 10 (71 per cent) have a detailed succession planning process and/or formal plan to ensure the continuity of their business; 19 per cent have a plan but it’s not detailed; six per cent don’t have a plan but it’s understood who in the family will take over the business

Tax changes intensify sense of urgency
While leaders are dealing with an uncertain economy, emerging technologies and sustainability pressures, new tax legislation has established a timeline for many to transfer the business within the family. These changes, which were introduced in the 2023 federal budget, affect the tax treatment of business transfers to a family member − particularly the ability for owners to claim a lifetime capital gains exemption. Notably, 70 per cent say they are accelerating their succession plans or putting them into effect before January 1, 2024, to avoid the incoming tax changes. The new rules set out more stringent requirements than existing rules for the intergenerational transfer of shares of a family-owned corporation.

To sell or not to sell: all options on the table
Sixty-nine per cent say they intend to sell to another company or third-party within the next three to five years (28 per cent agree strongly, 41 per cent agree somewhat).

As Mr. Archambault acknowledges, “it’s not always feasible to pass the family business down to the next generation, and some may not wish to follow in their parent’s footsteps. An option to selling the business to a third-party and relinquishing control may be to hire a non-family member as CEO and maintain family ownership. When making these decisions, it’s critical to consider the effects on family members, family legacy and reputation and ensure the future CEO or buyer is a good steward of the business.”