Quebec’s Boomer business dilemma

SUCCESSION

SANDRINE RASTELLO AND FREDERIC TOMESCO Most economies cherish startups and the entrepreneurs who start them. Quebec is on the lookout for those, and something a bit different. You could call them carry-ons.

Quebec, among the most rapidly aging societies in the world, is at the forefront of a dilemma that’s looming for other developed countries as well. Small businesses are the wellspring of employment. A disproportionate share of them are owned by Baby Boomers now approaching retirement age. What happens to the companies when they get there? Is anyone thinking that far ahead?

The owners, Quebec has concluded, need help in arranging a smooth transition and ensuring the business carries on — for the economy’s sake as well as their own. The scale of the problem is surprising. Almost 60 per cent of Quebec’s small firms are poised to change hands in the next decade.

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Yet only 10 per cent have a formal leadership plan, according to Mouvement Desjardins, the country’s largest credit union.

“The problem is that owners don’t let go,” says Patrice Vachon, a lawyer with 37 years of transfer experience. Without preparation, “jobs will be lost, that wealth they’d created will disappear, there’ll be nothing to bequeath. Multiply that by eight million people in Quebec — that’s fewer taxes, less wealth for the people, that’s dramatic.”

It’s a challenge that’s on the radar in aging societies from Japan to Europe, but one that often gets overshadowed by other demographic concerns, such as shrinking labour pools or underfunded pension plans. Quebec has become something of a pioneer in addressing it. Policy-makers, universities and leading executives are pushing business owners into readying a sale plan in advance — and ensuring qualified people are ready to take charge.

Like Allysha Carr, who is supplementing her MBA with a new part-time program at Concordia University that teaches people how to take over a business. Operating her parents’ Montreal flower business wasn’t what she initially expected to do. “The independence and the flexibility, and a career that I was really proud of, was kind of right in front of me,” said the 28-year-old Carr, whose decision may save as many as 10 jobs when her parents retire.

Of course, an in-family succession isn’t always an option. Kids might not want to inherit or return to rural areas after studying in large cities, said Peter Jaskiewicz, a professor at the University of Ottawa. Falling birth rates will only make it worse, he says.

The demographics are alarming. With a quarter of its population projected to reach age 65 by 2030, Quebec is aging more rapidly than the U.S., the U.K. and the rest of Canada. A third of business owners have already turned 55, up from just 18 per cent two decades ago.

The province, whose economy is emerging from a decades-long slide, is doing its best to dodge the succession bullet. The Liberal government broadened tax breaks last month for family transfers, and is funding typically takes at least three years,” says Quebec City-based Quinn. “Three to five years is a good number.” He estimates the volume of transfers his team handles is growing 25 per cent to 30 per cent annually.

As many as 10,000 entrepreneurs, or about six per cent of the total, were at risk of closing their companies by 2023 for a lack of succession plan, jeopardizing as many 139,000 jobs, according to a 2014 Chamber of Commerce of Metropolitan Montreal report.

Even with a plan, the transition isn’t always smooth. Just ask 31-year-old Business Families Foundation, a Montreal-based nonprofit, that offers a 12-week program allowing children of owners or their employees to explore a spinoff.

Foreign investors are starting to pay attention, too. Classe Affaires, a recently established Montrealbased company, offers prospective French entrepreneurs introductory sessions on the Quebec business culture and helps them locate target companies.

Vincent Lecorne, head of the government-funded transfer centre, says many owners delay retirement and are uncomfortable making their departure public. That distorts the centre’s database, which contains about 3,000 potential buyers, yet only 300 declared sellers. “The culture of transfer doesn’t really exist yet in Quebec,” Lecorne says.

When he realized many owners didn’t have a succession plan, Vachon, the lawyer, adopted an “electric shock” strategy. “Too late, you’re dead,” he now tells people who attend his weekly, cross-province conferences, before proceeding to describe the impact a sudden death or illness would have on an unprepared business.

Many of these companies have a proven track record and are profitable, making them relatively low-risk opportunities, says William Meder, who set up the Concordia program. The aim of the program is to arm people with the knowledge to “come and say ‘I would like to buy your business,’ ” he says.

Carr, who’s currently running the flower store with her parents, wishes more people would follow her path.

“Everybody is talking about starting their own company,” she says. “There are lots of amazing companies already started.”