Family businesses shifting to next generation

Most Canadian family businesses are eyeing transition, with 78% creating a succession plan or expecting to transition the business to the next generation within three years, according to a KPMG survey. The consulting firm polled 286 family business owners and executives in Canada in August and September 2022.

Though the simple explanation for this "great transition" is the retirement of the large baby boomer cohort (with some having put it off because of the pandemic), KPMG’s Yannick Archambault points to something else.

“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,” the leader of KPMG Canada’s national family office said. “Technology is dramatically shifting the way businesses need to operate and current leaders are increasingly turning to the next generation to lead going forward.”

The survey found that seven in 10 leaders believe a more tech-savvy generation is needed to succeed in the future.

Archambault notes that younger incoming leaders have a “growth mindset,” deeper knowledge of new technologies, and greater willingness to integrate ESG into business planning.

The forthcoming recession will provide opportunities for cash-rich businesses to potentially pick up companies at a discount. Nearly six in 10 (59%) of respondents said they plan to acquire a new business within the next three years, while 64% are seeking to expand beyond Canada.

Though owners are looking for a transition, not all plan to pass down their business to family. In fact, over a quarter expect to sell their 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,” said Dino Infanti, national leader of enterprise tax, KPMG Canada.

The survey also found an increasing focus on ESG, with 70% of family-owned business reporting the presence of an environmental, social, and governance strategy.

Two-thirds (66%) said the drive to increase ESG commitments is coming from their next generation leaders and employees.