Keeping it Local: Co-ops as a Succession Plan for SMEs

Succession Tsunami Ahead

Canada faces a massive transfer of small and medium-sized enterprises (SMEs) as baby boomer owners retire. More than 1.2 million SMEs employ over 90% of the private sector workforce, but a staggering 76% of owners plan to exit by 2036. This shift involves $2 trillion in assets, amplified by lingering pandemic effects that already shuttered thousands of businesses.

Recent government actions highlight the crisis. In early February 2026, Ontario invested nearly $2 million in Succession Ontario, a hub delivering tools and advisory services through local Small Business Enterprise Centres. This initiative, stemming from the 2025 budget, aims to facilitate smooth transitions, with employee ownership models like co-operatives featured prominently.

Co-operatives enable workers or communities to buy out retiring owners, converting businesses into shared entities. This model has proven effective in places like Quebec, where supportive policies have led to hundreds of conversions. In Ontario, examples include the Aron Theatre and Arise Architects, where such shifts maintained operations and enhanced worker agency.

The stakes are concrete: without plans, businesses close, eliminating jobs—potentially hundreds of thousands—and eroding local tax bases. Communities lose essential services, from rural grocers to urban manufacturers. Deadlines loom as retirements accelerate; by 2030, half the wave could hit, with costs mounting in lost GDP and relocation burdens.

Non-obvious tensions arise between traditional sales and collective models. Search funds, where investors back young operators to acquire firms, promise continuity but often prioritize profits over locality. Co-ops, conversely, recirculate earnings locally, yielding 8-12% higher productivity and lower turnover, yet face hurdles like financing gaps and owner unfamiliarity.

Counterarguments question the 'crisis' label, noting some owners delay exits or that immigration could fill gaps. However, data shows younger generations favor digital ventures over legacy SMEs, leaving a mismatch. Federal budgets, like 2025's, have ignored the issue, leaving provinces like Ontario to lead.