Small to medium sized enterprises (SMEs) are found throughout the Canadian economy and are important contributors in economic growth and job creation. The aging of the Canadian population, business owners in particular, combined with a lack of succession planning throughout SMEs will have a negative effect on the Canadian economy in the near future.
According to Statistics Canada, Business Register in December 2011, 98.1% of all Canadian businesses are small enterprises and an additional 1.7% are medium sized enterprises. Small enterprises are defined as enterprises that employ 1-99 employees and medium enterprises employ between 100-499 employees.
There are almost 10.8M Canadians employed in the private sector in 2011 according to SEPH (Statistics Canada's Survey of Employment, Payroll and Hours) data. Of those employed in this sector, 47.8% are employed by small businesses with another 15.9% employed by medium sized businesses. Considering, the remaining 36.3% of those employed in the Canadian private sector are employed by large enterprises, it can be stated that the majority of the Canadian workforce is employed by a small to medium sized business.
SMEs are an integral part of the Canadian economy and support is in the form of gross domestic product, job creation and exports. As stated in Industry Canada's June 2010 published report Key Small Business Statistics,
SMEs contribute just over 40.7% to Canada's Gross Domestic Product
SMEs created 53.9% of all new jobs in the private sector between 2001 and 2011
SMEs account for 96.7% of all Canadian exporters in 2010
SME contributed $129 Billion in exports accounting for 42% of the total Canadian export value in 2010
In Canada, SMEs are shown to have a declining survival rate in Industry Canada's June 2010 published report Key Small Business Statistics. Based on small and medium sized businesses with fewer than 250 employees that entered the market in 2005, 85% stayed in business 1 full year, 70% stayed in business for 2 years, 62% stayed in business for 3 years and only 51% stayed in business for 5 years.
Compounding this issue is that the same report also shows that there is a net trending decline in the amount of entrants into the market/exits out of the market from 2002 - 2008. This statistic points out that the overall amount of SMEs is declining in the Canadian economy. With declines in the overall SMEs come declines in contributions to Canada's gross domestic product, job creation and exports. These declines have a negative effect on the Canadian economy.
The average age of Canadian SME owners is
As the Canadian population ages and the baby boomer business owners reach the age of retirement, it is expected that SMEs will either change hands or cease to exist. Those business owners with formal succession plans have the upper hand when it comes to successful business transition. Those who do not may be forced to close the doors.
In a TD Waterhouse poll in October of 2011, 76% of small business owners polled stated that they did not have a succession plan for retirement. 23% of those polled also stated that they would close the doors when it comes time to retire and 27% said that they did not know what they would do.
Another report, the CFIB Succession Planning Research report published in October of 2006 states that "Retirement is the main reason for business owners to exit their businesses. However … one in ten owners planning to exit their business have their sites set on starting another business venture." (Bruce, 2). Of those business owners surveyed 34% stated they were going to retire within 5 years (between the years 2007-2011), 32% stated that they planned to retire in 6-10 years (between the years 2012-2016). These statistics point out that in 2006, 64% of SME had plans to retire within 10 years.
Application and extrapolation of the above percentages to the existing businesses recorded in 2011 (Appendix 1) show that there is a potential of 82,436 - 272,398 businesses that could exit the Canadian economy by the year 2016. These are of course offset by the average SMEs that are entering into the economy as stated in Appendix 7 of 10,000/year or 50,000 by 2016. The potential net decrease in SME's by 2016 is 32, 436 - 222,398 assuming that those owners without formal succession planning are forced to close their businesses in order to retire.
This paragraph should tie in the effects on the economy if SME decrease throughout the country.
This paragraph should identify that young entrepreneurs are likely to start new businesses to bridge the gap and some of the current business owners will start new businesses but that there are restrictions to youth getting funding and such - only 1/10 older owners will start another business resulting in less being started than being closed.