Did you know that about one-fifth (21 per cent) of Canada’s workforce consists of people over age 55? And, by 2030, the baby boomer retirement wave will reach its peak, when the youngest members of that generation turn 65.
While this impending retirement wave will impact all sectors of the economy, small businesses will be hit particularly hard. More than three-quarters (76 per cent) of small business owners plan to exit their business within the next decade, according to a report by the Canadian Federation of Independent Business (CFIB). And for 75 per cent of those small business owners, retirement is the top-cited reason. Yet, only one in ten have a formal succession plan in place.
At the same time, more Gen Xers and millennials are moving into leadership roles, while Gen Z is making up a larger — and growing — percentage of the workforce. In 2021, nearly 20 per cent of the Canadian workforce was comprised of Gen Z, according to the Canadian census. These generational shifts offer an opportunity for growth and change, but they can also pose significant risks to small businesses, from lack of succession planning to loss of institutional knowledge.
New risks associated with generational shifts
Gen Z (those born between 1997 and 2012) grew up in an era of economic uncertainty. They were also the first generation to grow up with new technologies such as social media, which has impacted their outlook and values. For example, they’re ambitious, but not in a ‘traditional’ way. Several studies show that, rather than climbing the corporate ladder, Gen Z prioritizes roles that align with their personal values and a healthy work-life balance.
As digital natives, Gen Z expects to use technology, including AI tools, on the job. Employers who don’t offer these tools may have a harder time attracting and retaining younger employees, but they could also alienate less tech-savvy workers by forcing them to use new tools without training, upskilling or reskilling opportunities. With increasing pay transparency through online job marketplaces, employers who pay salaries below market value will also have a hard time attracting new talent.
As leaders retire (or key employees leave the company during a transitional period), institutional knowledge and expertise can leave, too. A less experienced workforce can hurt a company’s operational performance and reputation, opening the door to costly mistakes and errors. There’s a need for intergenerational mentorship, so boomers and Gen Xers — who’ve acquired a wealth of experience — can pass on their know-how to younger employees and help bridge knowledge gaps.
One of the biggest risks that small businesses face relates to lack of succession planning. About 91 per cent of small business owners don’t have a formal succession plan, while almost half (46 per cent) have no plan whatsoever, according to the CFIB report. Businesses without a succession plan often sell for significantly less than those with a transition strategy, while a forced closure or fire sale could leave employees without a job and small business owners without the retirement income they were planning on.
Adapting to generational small business risks
As the workforce undergoes generational shifts, small businesses will need to adapt. For example, Gen Z can be perceived as disloyal because they tend to job-hop in comparison to boomers, who’ve often stayed at the same company for years — sometimes for their entire career. But job-hopping has become more of a necessity for Gen Z as they try to improve their financial circumstances.
“Rather than indicating disloyalty or casual job-hopping, this movement reflects unmet ambition and a search for clear career progression, purpose, and growth opportunities,” according to The Gen Z Workplace Blueprint report by Randstad Canada. “Employers who recognize this reality and reframe mobility as an asset can turn Gen Z’s drive into a leadership advantage, retaining talent while fueling innovation.”
Addressing generational shifts in the workforce means fostering a culture that will attract and retain incoming Gen Zs. While financial compensation is important, Gen Z is also seeking more flexibility, better work-life balance, and access to wellness programs and mental health supports. They also want to work for companies that embrace technology and offer a clear path for career progression.
A more modern work arrangement could include flexible schedules (not the traditional 9 to 5), remote or hybrid work arrangements, and outcome-based performance metrics. Millennials, too, are looking for flexibility as they juggle family responsibilities, while Gen X — the sandwich generation — may seek more flexibility at work while caring for children and elderly parents at the same time.
Ensure your small business is protected with insurance
Small business insurance provides dedicated coverages for small businesses that can help manage everyday risks — as well as risks that can arise from shifts in leadership and managing multi-generational workforces. For example, if a less experienced workforce makes mistakes during a transition period, this could lead to operational disruptions or professional errors. This is where coverages such as business interruption or professional liability could help. Learn more about protecting your small business by visiting our small business insurance page today!