Why business services firms face a human capital cliff

Artificial intelligence dominates headlines, but for business services firms—especially those in staffing, workforce solutions, facility services and waste management—AI is just one of the disruptive forces transforming the business services industry. The evolution of the workforce, increased regulatory pressures and private equity developments are equally disruptive—and cannot be overlooked.

The evolution of the workforce

Every industry is currently poised for a massive labor adjustment as the tail end of the baby boom generation, those born between 1946 and 1964, approaches retirement age.

Approximately 4.2 million people in the U.S. will turn 65 each year for the next five years. The upcoming wave of retirements is leading to concerns about continuity, succession planning and maintaining a skilled workforce. This mass exodus will disproportionately affect the business services industry, as it has a higher concentration of workers over 55 when compared with the overall U.S. workforce. These issues are mirrored in Canada.

These seasoned workers are an integral part of business services firms’ success, contributing experience, continuity and perspective to the organizations and clients they serve. This wealth of knowledge is not easily replaced. Furthermore, as AI and other disruptive forces lower barriers to entry and reward speed and efficiency, business services firms face heightened competition from rivals that adopt new technologies and workforce strategies more quickly, making succession planning an even more urgent priority.

For retiring owners, the challenge lies in releasing control and embracing mentorship as new leadership takes the reins. This is a delicate transition no matter the time period, but as the RSM US Middle Market Business Index shows, executive sentiment has seen a sharp decline, with revenues, earnings and hiring all slowing. In such an environment, the instinct to delay succession can be strong, but doing so only heightens the risk of institutional knowledge loss, leadership gaps and weakened client relationships.

Business services firms’ rapid pace of AI adoption requires a parallel focus on workforce readiness. For employees over 55, being asked to quickly adapt to AI-enabled processes after decades of honing traditional methods is no small ask. Multiple studies, including those done by Pew Research, have found that older workers are less likely to use AI in their jobs or be enthusiastic about its potential.

With firms pulling back on expansion and capital spending, reskilling existing staff becomes the more pragmatic strategy as business services firms plan for the future. Succession planning must be part of this transformation effort. Without intentional change management and knowledge transfer, organizations face drawn-out timelines, rising costs and a more fragile position in the marketplace. By embedding succession into culture and linking it to upskilling initiatives, business services firms can not only preserve continuity but also position themselves for resilience in an era of accelerated change.

Immigration policy effects

In January, the White House released presidential actions that focused on restricting immigration policies, leading to a reduction in the overall immigrant workforce in the U.S.

Canada’s revised immigration policy will decrease permanent resident planned levels from 395,000 admissions in 2025 to 365,000 by 2027. This is down from 483,000 admissions in 2024.

These policies place restrictions on the overall workforce of both countries. For sectors like staffing, janitorial and facility services—where foreign-born workers represent a large share of the workforce—this reduction is already leading to lower fill rates, longer recruitment cycles and heightened costs.

Private equity interest

The impact of the aging workforce and immigration policy changes are driving private equity to look more closely and frequently at business services.

According to PitchBook, deal count for business services firms remained steady during 2024, when mergers and acquisitions across industries saw a significant slowdown because of economic uncertainty. While some of that uncertainty is still present, deal count in 2025 has appeared to keep pace with prior years, and the median deal size has grown considerably.

Business services firms are appealing to private equity groups because of their somewhat predictable recurring revenue models. Conversely, private equity also can offer some of the cash needed to ensure adequate augmentation of the workforce, as well as to support strategic initiatives such as AI.

The takeaway

Business services firms are approaching a human capital cliff. The retirement wave, restrictive immigration policies and the accelerating adoption of AI are converging to reshape the workforce at a pace not seen in decades.

For leaders, this means succession planning, cross-generational knowledge transfer and workforce upskilling are no longer optional strategies. They are survival imperatives.

The industry’s resilience will depend on operational agility—finding ways to do more with leaner teams, leveraging technology without alienating seasoned workers and positioning succession as a legacy rather than a loss.

For some business services firms, private equity may provide the capital needed to fund these transitions, but long-term competitiveness will come down to how well they align human capital strategy with technological adoption. Those that invest early, plan deliberately and adapt quickly will be best positioned not only to withstand disruption, but to define the next era of business services.