CA executives foresee sweeping change in business ownership, says inaugural CICA/RBC Business Monitor

Almost half of all executives who are Chartered Accountants (CAs) in privately held Canadian companies expect to sell, close or transition their business within the next 10 years, according to the inaugural edition of the CICA/RBC Business Monitor (Q2 2007). This new report is based on a national study being conducted quarterly by The Canadian Institute of Chartered Accountants and RBC.

“These results highlight the growing focus on succession planning and merger and acquisition activity among privately held businesses in Canada - a phenomenon that we believe will have significant implications for thousands of businesses, employees, and for the Canadian economy as a whole,” said Kevin Dancey, CICA president and CEO.

The CICA/RBC Business Monitor (Q2 2007) is based on interviews conducted by email with Canadian Chartered Accountants in senior corporate positions such as CFOs, CEOs and COOs in both privately held and publicly held companies.

“Many of the key sentiments expressed in this survey reflect current realities regarding the outlook for the Canadian economy,” noted Craig Wright, vice-president and chief economist, RBC. “The survey rightly identifies pressures on competitiveness, expectations that the wave of consolidation will continue unabated, and the need to rebalance fiscal policy priorities in order to address these issues.”

Respondents cited market competition (40 per cent) as their number one business challenge, followed by customer demand (25 per cent); regulatory requirements (23 per cent); value of the Canadian dollar (23 per cent); and management skills shortage (20 per cent).

The business leaders linked some of their concerns to current federal fiscal policy in Canada, specifically high overall taxation and the size of the national debt. A strong majority (69 per cent) believe lowering taxes across the board is the best thing the government could do to improve Canada’s competitiveness. Three in 10 believe at least 30 per cent of the federal budgetary surplus should be allocated to reducing the national debt.

“The survey underscores the view of Canada’s CAs that reducing high taxation and national debt levels should be among this government’s top priorities,” added Dancey. “It’s particularly important that we permanently address the country’s persistent problem of high taxation levels cited in the survey in order to boost Canada’s competitiveness.”

The inaugural CICA/RBC Business Monitor (Q2 2007) also shows the current overall mood among Chartered Accountants in senior executive roles to be one of cautious optimism about Canada’s future economic prospects. Nine in 10 surveyed are either “optimistic” or “neutral” about the economy. Provincially, optimism varies markedly. Almost all respondents in Alberta and British Columbia are “very optimistic” or “optimistic” about the economic prospects for their province in the next 12 months; less than half of respondents in Ontario and Quebec shared the same sentiment.

Senior executives showed more optimism about the prospects for their business for the upcoming year with 73 per cent citing plans to expand operations in 2007. Those surveyed also said that in 2007 they expect to:

Increase total revenues by 5.2 per cent and total profits by 4.4 per cent

Increase their workforce by 2.7 per cent and increase average total salaries by 3.2 per cent

See input prices increase by 2.3 per cent, and to increase their prices by 1.8 per cent

Increase department budgets in IT (3.6 per cent), research and new product development (2.9 per cent), advertising, sales and marketing (2.4 per cent), and other capital investment (3.2 per cent)

Obtain additional funding of 2.7 per cent from equity, 2.4 per cent from debt, and 1.9 per cent from bank borrowing.

The survey was completed by 345 CAs of the 2,053 identified by the CICA as CAs holding senior positions in publicly or privately held companies in Canada, for a response rate of 17 per cent. The margin of error associated with this type of study is ± five per cent, with a confidence level of 95 per cent.

The CICA/RBC Business Monitor (Q2 2007) is part of an international initiative. The American Institute of Certified Public Accountants (AICPA) in the United States and the Institute of Chartered Accountants in England and Wales (ICAEW) in the United Kingdom are also undertaking quarterly studies that tap the insights of senior executives to provide a barometer of economic activity in their nations and as a basis for future comparative analysis across countries. The CICA/RBC Business Monitor (Q2 2007) is available online at www.cicarbcbusinessmonitor.com.

The Canadian Institute of Chartered Accountants (CICA), together with the provincial, territorial and Bermuda Institutes/Ordre of Chartered Accountants, represents a membership of approximately 72,000 CAs and 10,000 students in Canada and Bermuda. The CICA conducts research into current business issues and supports the setting of accounting, auditing and assurance standards for business, not-for-profit organizations and government. It issues guidance on control and governance, publishes professional literature, develops continuing education programs and represents the CA profession nationally and internationally. CICA is a founding member of the International Federation of Accountants (IFAC) and the Global Accounting Alliance (GAA).

RBC delivers a wide range of financial services through a variety of channels to individuals, small and medium-sized businesses and commercial clients, including deposit accounts, investments and mutual funds, credit and debit cards, business and personal loans, and residential and commercial mortgages. It is the personal and commercial banking division of Royal Bank of Canada (RY on TSX and NYSE).