As a significant wave of small business owners get set to transition into retirement, a recent study from Scotiabank shows small business owners feel modernizing their digital capabilities is a key opportunity to increase the value of their business in advance of a potential sale.
In Scotiabank’s fifth annual Path to Impact Survey, several small business owners across Canada said that they do not have a clear path to digitalizing their operations which, in addition to dissuading potential buyers and possibly leaving money on the table may also make the business less productive and less profitable.
“The landscape of Canadian business is transforming,” said Pouya Zangeneh, SVP of Small Business Banking, Scotiabank. “With a significant portion of small business owners nearing retirement, and digital savvy younger entrepreneurs stepping up, the need for robust digital strategies and effective succession planning is escalating.
“Scotiabank’s 2024 Path to Impact survey uncovered both long- and short-term challenges weighing on the minds of business owners. Unsurprisingly, small business owners are concerned about the economic climate and higher costs due to sustained inflation. Small business owners surveyed said that inflation (46%) and a possible recession (38%) were their top-ranked concerns for the next 12 to 24 months, followed by supply chain disruption (19%), labour shortages (18%) and cyberattacks (18%). Increased costs for materials, supplies and capital costs are also top of mind, leading business owners to cut expenses.
“The major long-term concern is the need for succession planning. There will be a generational shift within Canada’s small business ecosystem in the coming years. Nearly half (48%) of Canadian small business owners are planning to exit their business within the next decade.”
Zangeneh said succession plans are crucial for a small business to survive after the original owner sells, however not every owner is prepared.
“Scotiabank’s survey found that nearly a third (31%) of small business owners in Canada are planning to sell their business by 2030. However, many are not making the necessary plans. Just over 65 per cent of small business owners have a succession plan in place, and only 43 per cent of those planning to sell in six or more years say they are not prepared,” he said.
“Thirty-five per cent of business owners don’t have a succession plan in place at all. They cited various reasons, with the majority saying planning is not a priority (40%), they don’t need one (33%) or they simply haven’t thought about it yet (33%).
“For those that do have a plan in place, 36 per cent intend to keep the business within the family, while about one in three plan to sell to a larger company (12%) or non-family members (20%). Fifteen per cent plan to close the business altogether.”
Zangeneh said the report found small business owners felt by modernizing and advancing their business’ digital capabilities, it gives them an opportunity for both short and long-term gains.
“By leaning into technology and creating a more digital experience the business will see many benefits, including the ability to meet customer and employee demands faster and help the business find efficiencies and cost-saving opportunities,” he said.
“Nearly half of those polled for this survey (45%) see digital transformation as critical to help with the sale or transition of their business. Those who have embraced digital tools are already seeing tangible benefits, including improved customer service (37%), wider reach (37%), increased revenue (33%), and reduced costs (32%).”
Zangeneh said part of the digitization process could include the adaptation of AI technology.
“Small business owners polled for this survey are showing openness to innovative support strategies, with 40 per cent saying the integration of AI could help them sustain and grow their business. As mentioned earlier, those small businesses that have enhanced their digital capabilities in the last three years have reported several benefits, including the ability to keep up with higher demand (31%) and innovating faster (31%),” he said.
“While helping owners grow and sustain their businesses, these benefits are also helping in the long-term, making the business more attractive for potential buyers.”
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