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Family business handovers imminent: KPMG survey

Small and medium sized family-owned businesses in Canada see the tech-savvy next generation as key to staying competitive

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Canada’s family businesses are thinking about the future, as 78 per cent say they are developing a succession plan or expecting to transition the business to the next generation within three years, according to a 2022 survey by KPMG in Canada.

The research surveyed 503 small and medium sized family-owned businesses, with 32 per cent of the companies reporting annual gross revenue of over $500 million. Of the 286 family businesses surveyed, 139 of the business leaders who responded are women and 147 are men.

Succession, technology and staying competitive

The report reveals that the emphasis on family-owned businesses preparing a succession plan is a result of the ever-increasing pace of technology in the business world and the need to get on board to stay competitive. In fact, seven out of 10 respondents said they felt a generation of tech-savvy leaders was required.

“We are seeing a demographic shift to a younger generation of family business leaders, as a result of the increased reliance on digital technology driven by the pandemic,” says Yannick Archambault, national family office leader, KPMG in Canada.

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“Technology is dramatically shifting the way businesses need to operate and current leaders are increasingly turning to the next generation to lead going forward.”

Selling the business versus expanding and acquiring

But despite this march towards the future, many family businesses still report being under-prepared for what’s next, including 26 per cent of family business leaders saying they plan to sell the business in the next three years.

“The desire to sell may reflect those ‘next gen’ leaders who are less interested in running the existing family business as they are in managing the family wealth, setting up new businesses or pursuing philanthropy,” says Dino Infanti, national leader, enterprise tax at KPMG in Canada.

“In some cases, the founder may want to sell to fund their retirement plans and to free up family members to be enterprising in new ways.”

Passing along the family business to the next generation is just one part of the picture for today’s family businesses, as 85 per cent of the survey’s respondents reported forming a plan to change or adapt the strategic direction of the business, taking advantage of opportunities in the current bear economy.

This could look like expansion outside the country for some, as 64 per cent of these businesses say they are looking for opportunities beyond Canadian borders. Others plan to expand their business by acquiring another, as 59 per cent say they plan to do just that. Seventy-one per cent of these businesses say they plan to take this opportunity in the current financial environment to raise capital.

ESG and female leaders

Canadian family businesses are also taking an opportunity to lead in ESG (environmental, social, governance), as seven in ten of the respondents reported having an ESG strategy in place.

In particular, female leaders are making the monetary connection between ESG performance and executive income, as 72 per cent say they do tie pay to ESG targets, compared to 51 per cent of men.

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“Women family business leaders aren’t waiting for the environment to change around them,” says Infanti. “As transformational leaders, they are representative of the changes they want to see in their business, the family and society.”

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