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 the country, echoed those concerns. The CFIB is wrapping up its own detailed study on the same issue - to be released within the next few months - and says its findings correspond with those of the bank.

"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 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 small independent companies account for almost half of Canada's economic activity.

Vancouver lawyer Don Sihota worries about what might happen in this province. B.C. government figures show that in 2000, 18 per cent of business owners in B.C. were over the age of 55; three years later that number climbed to 24 per cent.

"Imagine what could happen if that trend were to continue," says Sihota, who specializes in business succession.

The B.C. government says that in 2003 small business - between five and 50 employees, according to its definition - accounted for 98 per cent of the 366,770 enterprises registered in the province. Sihota says that given those numbers, the results of poor succession planning could be a calamity for B.C.

"If (business owners) don't plan for this and they start falling off the cliff, the economy is going to start to suffer," he says. "It might end up in consolidation where you get smart competitors out there could pick out the remains and maybe get even stronger, but it's really hard to predict."

Sihota says planning well in advance is the key. Entrepreneurs have different options once they decide to retire, including selling to a third party, selling to employees or management, and turning over the company to their kids. There is a natural inclination among owners to want to pass their business on to their children. Unfortunately, that's where many problems arise.

"I tell my clients that children do tend to fight amongst each other - difference of opinions - and if you lock them together where they have to work together, what do you think is going to happen?" Some do it right, however.

After more than 30 years of owning and operating Davey Fabrics, Edmonton entrepreneurs Al Davey and his wife Jan called it quits. Luckily, family members were waiting in the wings. Son Grant, childhood friend Dan King and his cousin Jim Davey took over the business in 2001.

"I guess the day Grant joined the business is when we first thought about it ... You don't ask your son or daughter into business, you let him ask, and let them ask and ask and ask and ask some more," Al says.

Grant began with the company in 1989. Al says the moment he passed through the door was when the first seeds of succession were planted, although formal planning did not actually start until 1996.

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 contribution.

According to the CIBC report, the impact on Ontario's small-business community should not be quite as bad as that of B.C. In the next decade, roughly 21 per cent of Ontario business owners plan to retire compared to 24 per cent in B.C.

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.

The Toronto Board of Trade points out that of the 230,000 people who immigrate to Canada each year, 100,000 end up in Toronto. Most have post-secondary educations, 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," says board spokesman Glen Stone.

An issue facing potential suitors of existing businesses is access to capital. The CFIB's Bruce wonders who is going 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."

Many watchers predict retirements, coupled with burgeoning economic growth, could prove a disastrous mix.

But it's not just small-business owners who will be retiring in increased numbers in the coming years.

Canada's much-publicized human capital crisis - especially in the provinces of B.C., Alberta and Ontario - 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 45-64 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.

Loren Falkenberg, a professor at the University of Calgary's Haskayne School of Business, thinks Canada's economy could suffer if Canadian business fails to fill the gap that will be left behind by the baby boomers.

Another group must step in to bridge the gap that massive retirement will leave because "the narrow group of younger people coming into the workplace won't be enough."

She cites the time during and after the Second World War when women entered the workforce in droves, allowing the economy to blossom.

The B.C. Chamber of Commerce believes that breach can be filled by the steady stream of immigrants into that province, but also by another group often overlooked by the business community.

"We have a huge aboriginal community in British Columbia that needs better education opportunities, better training, and better work opportunities," says John Winter, chamber president and CEO. "We talk about it a lot, but we don't seem to be doing very much."

He notes that while the high school graduation rate among First Nations people has improved, it still lags well behind the provincial average.

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 this province will be created as a result of retirements.

He says that while not every sector of B.C.'s economy is vulnerable, some, such as the construction industry, will be. When the construction sector employed roughly 120,000 people in 2003, the B.C. government forecast that by 2011 roughly 145,000 would be working in the industry, he notes. This past December the employment level hit 167,000.

If B.C. businesses don't start preparing for the 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."

Meanwhile, the red-hot oil and gas sector isn't quite in crisis mode, but it should keep its eye on the horizon as baby boomers - both professionals and tradespeople - march steadily towards the golden years, say industry observers.

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 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."

(John Ludwick can be reached at ludwick@businessedge.ca)