Canadian businesses are facing a retirement crisis that could cripple the nation's economy if the necessary preparations aren't made, industry experts say.
One of the most susceptible groups is the small-business sector, which according to a recently released CIBC study stands to lose half a million owners by 2010. By 2020, about half of the 2.5 million currently active entrepreneurs in Canada will have been put out to pasture - a figure called "staggering" by Rob Paterson, senior vice-president of CIBC small business banking.
The Canadian Federation of Independent Business (CFIB), a voice for many small- and medium-sized enterprises across Canada, echoes the concerns.
"It is quite alarming what we're seeing ... it is fast approaching, probably a lot faster than what a lot of people think, and the (retirement) issue is going to be quite big," says Doug Bruce, director of research for the Toronto-based organization.
"I think now is the time to get business owners preparing for their own succession, because it not only has implications for each individual small business, but also for the overall economy," because independent companies account for almost half of Canada's economic activity, says Bruce.
The CFIB is wrapping up its own detailed study on the same issue - to be released within the next few months - and says its own findings correspond with those of the bank.
According to the CIBC report, the impact on Ontario's small-business community shouldn't be as bad as elsewhere in the country. In the next decade, roughly 21 per cent of owners plan to retire, compared with 26 per cent in Alberta.
Some in Toronto's business scene believe that city's small- business community will continue to thrive, largely due to the influx of immigrants with an entrepreneurial spirit who arrive in the city in droves each year.
"There's a challenge but also an opportunity," says Glen Stone, spokesman for the Toronto Board of Trade. "I think Toronto is uniquely placed to not be as affected as other parts of the country because we have a lot of new Canadians who are ready to step into the small-business community."
The board points out that of the 230,000 people who immigrate to Canada each year, 100,000 end up in Toronto. Most have a post-secondary education, while many have experience running their own businesses.
"Many are entrepreneurs and they come here because they know it's the kind of culture and economy where they can succeed," Stone says.
Another concern is the lack of preparation for the inevitable day the small-business owners will retire, CIBC says. On the financial security side, the bank notes that only one in five small-business proprietors maximized their RRSP contribution in 2003. Even among entrepreneurs closest to retirement, less than one-third maximized their 2003 RRSP contribution.
Equally important is the question of how business owners ready themselves for succession, says Gord Wusyk, principal of Edmonton-based Predictable Futures - The Family Business Centre, which specializes in succession planning for family businesses.
Wusyk says his company attempts to get entrepreneurs thinking about succession when they're still in their 50s. This is especially important if they hope to pass the business to the kids, he says.
"Start early rather than late, because then you can prepare people for leadership or get your son or daughter to work for four or five years outside the business to get independent experience before then taking over your company," he says.
OK Transportation's Michael and Peter Lobraico aren't yet ready to retire, but succession is already creeping into the equation. In the mid-1980s they took over the Toronto-based trucking company from their father.
"It was a well-planned, well-thought-out transaction and we've been pretty successful with it," Michael says.
Now, with three of their children learning the business - and possibly more who will join the company in the future - the owners must be mindful of future succession, even if it's more than a decade away.
"You have to look ahead to what'll be happening in the next five to 10 years, and that helps us determine who the players are going to be, what their goals are and what their desires are," he says. "It helps you ensure the succession plan you carry forward is one that's going to work."
Such stories are fewer today because most business owners end up selling outside the family; only around 25 or 30 per cent of small firms are passed from one generation to the next, Wusyk says.
Another issue for potential suitors of existing businesses is access to capital. The CFIB's Bruce wonders who is going to buy the hundreds of thousands of businesses placed on the market in the coming years - and more to the point, how they're going to afford it.
He says his organization has studied the problem of access to financing for years and has found that the small-business sector always has a tougher time securing the financing to start or purchase a business than larger companies.
He insists that financial institutions must play a greater roll if the small-business sector is to survive, "by not only providing information to clients, but also providing the needed financing for the successors."
But it's not just small-business owners who will be retiring in increased numbers that signals problems to come; many watchers predict retirements, coupled with burgeoning economic growth, could prove a disastrous mix.
Canada's much-publicized human capital crisis - especially in the provinces of Ontario, Alberta and British Columbia - is set to be compounded by a wave of retirements of both executives and the rank-and-file in the coming years.
According to a Human Resources Development Canada report, approximately 41 per cent of the working population will be aged 45 to 64 by 2011, compared to 29 per cent in 1991. The same report found that the traditional pattern of working until age 65 is becoming less common. The average retirement age declined from 63.2 years in 1989 to 61 years in 1999.
Londa Burke, vice-president of operations for The People Bank, a Toronto-based human-resource firm, says attrition due to retirement isn't yet a dire issue for the city's companies, but she thinks the business community should still be preparing for the large-scale retirements that will be coming.
She says the executive levels are most vulnerable, for two reasons: They are generally closer to retirement age and more executives are opting to retire earlier.
"We're not prepared because we don't have enough people trained in those levels to fill those positions," Burke says. "There's a lot of knowledge that's going to go with that group and the people entering the workforce are nowhere near ready for the senior executive positions."
Middle management is another vulnerable group, although Burke notes that more of these workers choose to work beyond retirement age, some into their 70s.
"For some it's because they want to keep working and keep busy; others need the money. People haven't saved, and unfortunately (the Canada Pension Plan) just isn't going to get them very far."
In oil-rich Alberta, the energy sector isn't quite in crisis mode, but industry observers say it should still keep its eye on the horizon as baby boomers - both professionals and tradespeople - march steadily toward the golden years.
The Petroleum Human Resources Council of Canada rolled out a comprehensive study in 2004 on the human- capital crunch. The study detailed how the next decade will see roughly 20 per cent of oil and gas industry employees retire. Today the bulk of the workforce - about 43 per cent - is under 45 years of age.
While the Calgary-based Crown agency doesn't anticipate an immediate outpouring of workers from the industry as a whole into retirement in the next 10 years, certain sectors, such as the already labour-strapped oilsands, will feel the pain.
"If you look at the oilsands numbers, those are particularly more distressing, because about 30 per cent of the workforce is going to be retiring over the next 10 years," says Cheryl Knight, executive director and CEO.
"You take the retirements and add to that the significant growth that's expected in that area, and you've really got a compounding effect that is so much more significant in the oilsands."
In British Columbia, Victoria-based human resource consultant Kerry Jothen predicts that over the next 10 years about 40 to 50 per cent of new job openings in that province will be created as a result of retirements.
He says that while not every sector of B.C.'s economy is vulnerable to a wave of retirements, some, like the construction industry, will be. When the construction sector employed roughly 120,000 people in 2003, the B.C. government was forecasting that by 2011 roughly 145,000 would be working in the industry, he notes. This past December the employment level hit 167,000.
"It's not just a blip on the radar, and it doesn't appear that the economy is going to slow down," which means rapid growth, he says.
If B.C.'s business sector doesn't start preparing itself for the projected drain, "you're going to lose the talent war and you're not going to be competitive in your industry, with companies in other industries and companies outside of B.C."
(John Ludwick can be reached at ludwick@businessedge.ca)
