The face of small businesses in Canada is getting more wrinkled – and that shift carries a profound impact on the economy.
In the next five years, an estimated $1.9-trillion in business assets are expected to change hands – the largest turnover of economic control on record, according to a CIBC World Markets analysis to be released Tuesday. Ten years from now, that number will grow to at least $3.7-trillion.
It's a reflection of the country's changing demographics. About a quarter of a million business owners, or a fifth of businesses with employees, are now aged 55 and over. That number that has climbed 4 per cent a year over the past decade, more than double the rate in the 1990s. By the end of the decade, almost 350,000 business owners will be over the age of 55 -- raising questions about who will take over thousands of Canadian businesses once current entrepreneurs retire.
"The economic implications of the accelerated pace at which firms are changing hands should not be underestimated," said deputy chief economist and author of the paper, Benjamin Tal, adding that succession planning is becoming a "critical issue."
Poor succession planning -- or having no plan in place at all -- could affect the Canadian economy through reduced productivity, job losses, premature sales and increased bankruptcy rates, he warned.
The shift will affect a big part of the economy. The firms that will change ownership in the next five years currently employ almost two million people and account for about 15 per cent of GDP.
All told, almost a third of business owners will leave or transfer control of their firms within the next five years.
What seems like a scattered problem today could spiral into a macro-economic issue in the coming years. "The changing demographic landscape of Canada suggests...the sheer number of business owners that will retire in the coming decade is turning this micro issue into a potentially damaging macro problem."
Almost six in ten business owners between the ages of 55 and 64 haven't yet started planning their exit strategy.
At least one study, published earlier this year, proposed tapping into one available pool of labour for the country's small and medium-sized businesses: immigrants.
"Skilled immigrants can boost innovation in small businesses by bringing new perspectives, speaking international languages, providing insight into the diverse domestic markets and by helping SMEs do business in the global marketplace," said a Maytree report in April.