The Great Canadian Business Transition… and Opportunity
January 2025
76% OF CANADIAN SMALL BUSINESS OWNERS PLAN TO RETIRE IN THE NEXT 10 YEARS...
The topic of business transition has garnered significant attention over the past several years — and for good reason. Over the course of the next decade, 76% of Canada’s business owners have indicated plans to exit their business, with most citing retirement as the primary reason. While Canada's aging population and the ongoing retirement of baby boomers has brought to light the importance of proactive succession planning, this environment also presents immense opportunity for both seasoned business owners and aspiring entrepreneurs alike to capitalize on a monumental generational shift of business ownership.
Key Takeaways this Month:
Small Business Dominates Canada: The Canadian business landscape is dominated by small business. In fact, 98% of all active businesses in Canada are considered small businesses (<100 employees).
A Prime Environment for Acquisition: A national survey published by the CFIB states that nearly half (49%) of business owners intend to exit their business by selling to an unrelated buyer, followed by planned sales to family members (24%) or employees (23%).
Get Ahead of the Transition: Current and aspiring business owners have a unique opportunity to capitalize on succession trends. Developing a comprehensive transaction plan is essential, and identifying opportunities is only the beginning. Success depends on careful deal structuring and securing the right financing — critical steps where Diamond Willow Advisory can provide the expertise to ensure your long-term success.
Canadian Population (1982 vs 2024) (mm)
Canadian Labour Force (1982 vs 2024) (mm)
With over 30% of Canadians aged 55 and up, many small businesses are set for ownership transitions.
THE GREAT CANADIAN BUSINESS TRADITION
Canadian businesses are experiencing a significant wave of transitions, with 76% of owners planning their exits in the next decade – this translates to a potential $2 trillion of business assets that could change hands during this period. Here are some key statistics from a national survey conducted by the CFIB:
Retirement is the primary reason for business exits for 75% of owners planning to leave; 22% of owners cited burnout as their reason for exiting, while 21% wanted to step back from responsibilities.
49% of business owners intend to sell to an unrelated buyer, while 24% will sell to family members and 23% to their employees.
Finding a suitable buyer is the most common obstacle to succession planning (54%), followed closely by business valuation (43%) and the reliance on the owner for day-to-day operations (39%).
BUSINESS COMPOSITION (Q3 2024)
Active Business by Employee Count
Approximately 98% of active businesses in Canada are between 1-99 employees.
Canadian Small Business Matters: Canada’s business landscape is dominated by small businesses, with a significant portion being micro firms (1-4 employees). As of Q3 2024, there were ~939k active businesses in Canada, of which, 98% had less than 100 employees. Medium-sized businesses (100-499 employees) and large businesses (500+ employees) represented a mere 1.4% and 0.3% of total active businesses, respectively. This distribution highlights the critical role that small businesses play in Canada.
Active Businesses by Province
AB, BC, ON and QB account for 89% of all active businesses across Canada.
The ‘Big 4’ Provinces Dominate Canadian Business: On a combined basis, Alberta, B.C., Ontario and Quebec represent 89% of all active businesses in Canada. This is unsurprising considering 87% of Canada’s population is domiciled in these regions. Alberta, B.C., and Ontario grew their active business base in 2024 by 0.5%, 0.3% and 0.2%, respectively, while Quebec had a decline of 0.2%.
Share of Canadian Active Businesses by Industry (Q3 2024)
Professional services, construction and retail trade accounted for ~36% of active businesses in Canada with a ~20% contribution to GDP.
Contribution to GDP by Canadian Industry (Q3 2024)
Real estate/leasing, manufacturing and finance/insurance accounted for ~12% of active businesses in Canada with a ~30% contribution to GDP.
Business Density vs. Economic Contribution: Certain industries, such as real estate, manufacturing, and finance show higher GDP contributions compared to a relatively small share of active businesses. A likely factor is the capital intensity of certain sectors, and environments where higher-value transactions are driven by a smaller number of industry participants. Conversely, sectors like professional services, construction, and retail trade show high fragmentation. While all industries arguably had a mixture of headwinds and tailwinds in the past few years that may distort these figures, these trends highlight the concentration of economic output in certain industries and more pronounced fragmentation in others.
GUIDELINES FOR PROSPECTIVE BUYERS
Leveraged buyouts can be a powerful strategy for acquisitions, but buyers must look beyond simply minimizing upfront investment. Key considerations include: “What level of debt is sustainable for the business?” and “How robust are the cash flows against economic fluctuations and external shocks?” Addressing these questions is essential to selecting the right acquisition structure and ensuring the long-term success of the business.
Whether buyer or seller, seasoned entrepreneur or aspiring business owner, all participants can mitigate deal risks and optimize outcomes by leveraging the expertise of financing specialists, skilled legal counsel and accounting professionals, and other trusted advisors. These professionals help navigate the complexities of acquisitions, ensure legal and financial soundness, and position the business for long-term success. Below, we explore several potential mechanisms for structuring and financing an acquisition.
Vendor Take Back (VTB)
The seller finances part of the purchase price through a loan with the vendor.
Benefits: Reduces upfront cost; simplifies financing; demonstrates seller confidence; potentially favorable interest terms
Considerations: Seller assumes repayment risk; may involve complex repayment terms; potential conflicts if business underperforms
Earn-Outs
A portion of the purchase price is contingent on future milestones or financial performance targets.
Benefits: Effective tool to bridge valuation gaps; aligns seller incentives with business success; lowers buyer risk
Considerations: Complex to structure; presents risk of disputes; seller is exposed to business performance risk and buyer management
Equity Roll
The seller retains partial equity in the business post-transaction
Benefits: Retains seller commitment and expertise; alignment of risk sharing and interests
Considerations:Retained stake reduces buyer control; potential future valuation disputes; shared decision making
Leveraged Buyouts (LBOs)
Acquisition is primarily financed with debt
Benefits: Minimizes equity requirement; higher returns for buyers
Considerations:High debt burden and risk; requires strength and resiliency of CFs; potential equity value disputes
Deferred Payment
Buyer pays part of the purchase price upfront and the rest over an agreed schedule
Benefits: Eases buyer’s cash flow; flexible structuring; reduces initial cost
Considerations:Seller bears repayment risk; potential disputes; requires negotiation of terms
Asset Purchase
Buyer acquires specific assets and liabilities rather than the entire entity
Benefits: Selective liability assumption; potential tax advantages; reduces exposure to unknown liabilities
Considerations:Legal complexity; contracts or licenses may need approval
Share Purchase
Buyer purchases all shares of the business, acquiring the entire entity
Benefits: Simpler transfer of ownership; retains existing contracts and employees
Considerations:Assumption of all liabilities; higher due diligence costs; may be less tax efficient for buyers
Sources: Canadian Federation of Independent Businesses, Succession Tsunami: Preparing for a decade of small business transitions in Canada (January 2023), Statistics Canada, Diamond Willow Advisory.
