What Canada’s aging population could mean for your succession plan
What Canada’s aging population could mean for your succession plan
The unexpected impacts on your business, and its sale, as Canada’s population continues to get older.
The unexpected impacts on your business, and its sale, as Canada’s population continues to get older
In business, foresight is often a key to success. Understanding the current landscape of Canadian business and anticipating future trends are important pieces of the effective planning puzzle.
This is especially true when it comes to succession planning in the face of Canada’s rapidly aging population.
As demographic shifts continue to redefine the country’s workforce dynamic, businesses must now be aware of the significance of proactive planning to help navigate the challenges and capitalize the opportunities that come with this evolution.
As you look towards your future, and the future of your business, do you know what you need, and what you want, to be successful both in business and in retirement?
By answering some simple questions and getting to know your business, you can be prepared for the changes that will inevitably impact your business and have the knowledge to safeguard your goals.
Understanding Canada’s aging population
Aging demographics
According to Statistics Canada, in 2022 – the most recent year of data available – almost one in five Canadians was over the age of 65, representing nearly 19 percent of the country’s population. In a study conducted for CTV News, Environics Analytics found this number is expected to increase to roughly 25 percent by 2043.
Workforce impact
The overall increase in older Canadians will result in a rapidly shrinking labour force and that could negatively impact business operations across the country.
Canada boasts one of the highest life expectancies in the world, with an average life expectancy of 82.3 years. This longevity translates to prolonged periods of retirement and potential challenges for businesses in retaining valuable knowledge and experience.
Business ownership
As is clear, the aging population correlates with a significant portion of Canadian business owners reaching retirement age. A Canadian Federation of Independent Business (CFIB) report from 2023 states that 76 percent of business owners plan to exit their business within the next decade.
That translates to over $2 trillion worth of business assets that could change hands during this 10-year period.
In the absence of effective succession plans, this number could present challenging situations for the economy and business owners when it comes to the continuity of the operation.
Implications for succession planning
According to the CFIB report mentioned above, around 75 percent of business owners will leave for retirement, around 22 percent will leave due to stress, and about 21 percent will step back from their responsibilities as owners.
Just under half of business owners, 49 percent, plan to exit their business by selling to an unrelated buyer. Nearly one quarter will sell to family members and slightly less, 23 percent, plan to sell to employee(s).
The majority of respondents, 54 percent, said finding a suitable buyer is the biggest obstacle to succession planning, followed closely by business valuation at 43 percent, and the reliance on the owner for day-to-day operations at 39 percent.
These statistics paint a very clear picture: as a significant number of business owners plan to exit their business in the next 10 years, nearly half are looking to sell, and the majority struggle with how to find a buyer that will meet their financial needs.
Additionally, a large number of businesses entering the market for sale in the next decade could translate to lower sale price, significantly impacting the kind of lifestyle business owners can expect or afford in their retirement.
This data aligns with MNP’s ExitSMART findings which show only eight percent of business owners say they’ve set clear and defined objectives for the future of their business. A vast majority, 62 percent, say they have not formalized a business plan to optimize their business’s worth, which could negatively impact their overall value.
Your key employees may be considering retirement too
An overlooked part of the value of your business lies in the key employees that help the organization function. Some buyers want to make sure that they’re taking over a business that will continue to operate effectively even after the owner has exited, and they rely on other senior leaders to help fill the gaps.
Canada’s aging demographic looms over this area as well. Are your key team members approaching retirement age? Some businesses are seeing mass retirements hit the top of their organizational charts and they’re caught unprepared to backfill those positions.
One way to overcome this challenge is to create a long-term talent development plan. This can help you prepare the next generation of leaders to improve stability in the organization and boost your retention efforts by creating a deeper tie between younger employees and the business.
Optimizing your succession plan to meet your needs
While it may be true that it’s better late than never to start planning for the future, when it comes to succession planning, the more time you have, the better.
Here are a few key steps to take to ensure you understand your financial situation and can make the right choices for what your future will look like:
- Get in touch with a Chartered Business Valuator (CBV) who can assess your business and determine what it’s worth.
- Have a qualified advisor work with you to evaluate at your assets, including the sellable value of your business.
- Formulate a financial roadmap for retirement – how much money do you need to live the lifestyle you want, and can you sell your business for a price that will help you reach those goals? Knowing your number can be a powerful tool at the negotiating table to help know when and what to push for.
- Determine if there is work that can be done to optimize your business and make it more attractive to buyers/ increase the sale value when the time comes.
- Figure out an exit strategy that makes the most sense for you and your business. Do you need or want to be involved in the transition of ownership? If so, when does that process need to start?
Whether you’ve already started putting your succession plan together or haven’t begun to think about the future, understanding how outside forces can impact your future is vital.
MNP’s ExitSMART assessment can help you determine next steps, no matter where you’re at in the process, and walks you through emergency planning, a value enhancement plan, and tax and estate planning, among others.
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