CIBC: Demographics and SMEs
CIBC: Demographics and SMEs
CIBC: Demographics and SMEs
Economics
Avery Shenfeld (416) 594-7356 [email protected] Benjamin Tal (416) 956-3698 [email protected] Peter Buchanan (416) 594-7354 [email protected] Warren Lovely (416) 594-8041 [email protected] Emanuella Enenajor (416) 956-6527 [email protected] Andrew Grantham (416) 956-3219 [email protected]
No. of Business Owners Age 55+ 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1990-2000 2001-2012 Average y/y % chg
Forecast
Within 24 months
Within 5 years
Within 10 years
Source: CIBC calculations based on the Leger Marketing Poll (July 2012), Statistics Canada
No wonder then that half of all business owners plan to exit operation in the coming decade (Chart 2). The practical implication of this reality is that close to 30%, or 310,000, of business owners will exit ownership or transfer control of their businesses within ve years. Within the next ten years, one-half (or 550,000) of owners will exit their business (Chart 3). By province, BC will see the largest transfer of ownership in the coming decade with no less than 40% of businesses expected to change hands in the coming ve years. On
Chart 2
the other side of the spectrum, businesses in Alberta are in less of a rush to transfer ownership, with only 20% planning to do so in the coming decade almost 10 percentage points below the national average (Chart 4). Growing Economic Cost The economic implications of the accelerated pace at which firms are changing hands should not be underestimated. The demographic realities of Canada in general, and the small and medium-sized enterprises in particular, suggest that succession planning is increasingly
Chart 4
Within
<24 months
No 51% Yes 49%
35%
8% 20% 21%
Canada
BC
Source: CIBC calculations based on the Leger Marketing Poll (July 2012), Statistics Canada
Source: CIBC calculations based on the Leger Marketing Poll (July 2012), Statistics Canada
becoming a critical issue. In the coming ve years, an estimated $1.9 trillion in business assets are poised to change hands the largest turnover of economic control on record. And by 2022, this number will mushroom to no less than $3.7 trillion. Given this magnitude, a faulty or badly executed succession planning process could have a ripple effect throughout the Canadian economy via reduced productivity, job losses, premature sales and increased bankruptcy rates. This potential cost is signicant. Note that the rms that will change ownership in the coming ve years currently employ close to two million people and account for no less than 15% of GDP (Chart 5). At this stage of the game, a small businesses principle strength the reliance on the human capital of the owner in almost every aspect of the business is also becoming its primary weakness. Adequate succession planning requires time and is often measured in years, not days or months. Still, close to 60% of business owners aged 55 to 64 have yet to start discussing their exit plans with their family or business partners.
2.0m
15%
Source: CIBC calculations based on the Leger Marketing Poll (July 2012), Statistics Canada
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