Succession challenges loom for aging business owners

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The past few years have been a busy time for Domenic Masellis.

Masellis Aluminum, the door-and-window-installation company he runs with his brother in Markham, Ont., rode the pandemic’s home-renovation boom. Customers who were stuck at home with extra cash plowed that money into major renovation projects.

Mr. Masellis said he’s been doing this work since 1986, and he’s started to think about winding it down in a few years.

“I’m 60 now,” he said, adding that the work is physically demanding. “We can’t keep plugging away.”

Mr. Masellis is one of hundreds of thousands of older business owners looking to exit in the coming years. And it’s a demographic wave that could radically reshape Canada’s entrepreneurial landscape.

The population of business owners is aging faster than the general population. According to Statistics Canada, in 2004, Canadians who were 50 years or older made up 31 per cent of the population and owned 47 per cent of the small and medium-sized businesses. In 2020, Canadians over 50 were 38 per cent of the population and owned 62 per cent of those businesses.

The federal government recently estimated that 75 per cent of small-business owners will retire in the next decade.

The effect this will have on Canada’s economy depends on the decisions that business owners are starting to make. Many may decide to close up shop and walk away, or sell to a larger company, both of which would reduce the overall number of small businesses.

But entrepreneurs are also looking at other options.

One is to look to the increasing share of immigrant entrepreneurs. As the population of small businesses has aged, it has also gotten more diverse: In 2011, 22 per cent of enterprises were owned by someone born outside of Canada. That grew to 29 per cent in 2020.

Those businesses are more likely to be micro-businesses, with one to four employees. They are often started out of necessity, for example by newcomers who can’t get their credentials recognized, and they face substantial barriers to growth.

“They become business owners because whatever experience they have in their country is discounted when they get here,” said Jackee Kasandy, owner of the Kasandy retail store in Vancouver and co-founder of the Black Entrepreneurs and Businesses Society of Canada.

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Karla Briones, who has owned a restaurant and retail store in Ottawa and coaches immigrant entrepreneurs, said the government and business associations could do much more to help match newcomers with business owners who are preparing for retirement.

“We have a lot of talent that is being underutilized, underemployed, under everything,” Ms. Briones said.

A newer option for business owners is employee ownership. The federal government introduced a measure in this year’s budget that would create employee ownership trusts, a way of spreading equity among a company’s workers. It is modeled after similar initiatives in Britain and the United States.

Tim Masson, owner of Toronto-based staffing company Raise Recruiting, is among those who have been pushing Ottawa to create these trusts. He and other proponents are still hoping Ottawa adds a capital-gains exemption that would incentivize owners to sell to their employees, because they believe wide adoption of the measure could have a positive impact on Canada’s economy.

Mr. Masson, who is 44, said he could earn more money by eventually selling his company privately. But he is concerned that too many companies like his could end up being controlled by multinationals or private-equity funds based in other countries, with more wealth leaving Canada.

“I think with this generational transition of Canadian businesses, we need to think about, as Canadian society, where do we want the control of those businesses to be held?” he said.

And then there is the most traditional succession path of all: keeping a business in the family by passing it on to children. A third of small and medium-sized enterprises are family-owned, according to Statscan, and those tend to be older than other businesses: 40 per cent are more than 20 years old, suggesting those owners may be especially close to retirement.

“It’s the biggest transition of wealth that’s ever happened in Canada,” said Peter Jaskiewicz, director of the Family Enterprise Legacy Institute at the University of Ottawa.

The transfer can be complicated and many owners may not be ready, he said. Part of the problem is the country’s relatively young age. Mr. Jaskiewicz, who is from Poland, said he has worked with companies in Europe that have been owned by 15 generations or more of the same family. In Canada, he is helping companies through their first or second generational transition.

One marker of success, he said, is how early children are involved in the business.

Heather and Greg Towndrow weren’t yet in grade school when their parents bought Lunenburg Hardware in downtown Lunenburg, NS, in 1989. The siblings helped stock shelves into their teenage years and the business eventually moved to a larger industrial area on the town’s outskirts. Around that time, the siblings left the business to pursue their own paths: Ms. Towndrow as an engineer, and Mr. Towndrow in manufacturing.

But after a decade they drifted back. They officially bought the store from their parents last year.

One way younger entrepreneurs differ from their parents is the importance they place on managing their mental health. A Business Development Bank of Canada survey of more than 1,400 entrepreneurs in February found 60 per cent of respondents under 45 said work-life balance was a source of stress.

Greg Towndrow said he and his sister ran the store differently from their parents. They’ve given a senior employee more responsibility in the store because he asked for it, and it allows them to better manage their work-life balance.

“Heather and I both really cherish spending time with our families,” he said. “So we both didn’t want to accept the 70-hour workweek.”