Startups Are Great, But Baby-Boom Businesses Need Nurture Too

  • As owners retire, Quebec fights to keep their companies alive
  • Province is test case for looming risk in ageing societies

Most economies cherish startups and the entrepreneurs who start them. Quebec is also on the lookout for something a bit different. You could call them carry-ons.

The Canadian province, among the most rapidly aging societies in the world, is at the forefront of a dilemma that’s looming for other developed countries too. 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 percent of Quebec’s small firms are poised to change hands in the next decade, yet only 10 percent have a formal leadership plan, according to Mouvement Desjardins, Canada’s largest credit union.

“The problem is that owners don’t let go,” said 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 8 million people in Quebec -- that’s fewer taxes, less wealth for the people, that’s dramatic.”

Flower Power

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 labor 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.

Allysha Carr stands for a photograph in Montreal.

Photographer: Sandrine Rastello/Bloomberg

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 said.

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 percent 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 the Quebec Company Transfer Center, an agency that helps match buyers with sellers. 

Carlos Leitao, the provincial finance minister, says the demographic trend, if unchecked, could lead to a sustained decline in Quebec’s productive capacity and a repeat of the 2009 recession, which saw a “brutal drop” in exports and many bankrupt companies.

“The issue of company transfer is always important,” Leitao said in an interview. “But now, in 2017, 2018, 2019, it’s becoming one of strategic importance.”

No Plan

The task is monumental. Most Quebec small business owners end up leaving money on the table because they’re more concerned with getting a good cultural fit, rather than maximizing value, said Richard Quinn, who oversees a company transfers team at Desjardins. “Preparing a successful company transfer typically takes at least three years,” said Quebec City-based Quinn. “Three to five years is a good number.” He estimates the volume of transfers his team handles is growing 25 percent to 30 percent annually.

As many as 10,000 entrepreneurs, or about 6 percent 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 Maxime Paulhus Gosselin, who joined his family’s cheese-import business near Montreal in 2010, thinking he would eventually take over. But when tensions with his parents flared, the company was sold to outsiders five years later.

Paulhus Gosselin channeled that painful experience into creating JOII, an online service that lets company owners and potential buyers compare plans and avoid future conflicts. GSOFT, a Montreal-based software maker, just took a stake in JOII, proving the looming succession crunch is also a business opportunity.

That’s certainly how the Caisse de Depot et Placement du Quebec sees it. Canada’s second-largest public pension fund manager recently unveiled a plan to invest C$250 million ($185 million) in mid-size companies that are planning a transfer. It also joined forces with the Business Families Foundation, a Montreal-based non-profit, that offers a 12-week program allowing children of owners or their employees to explore a spin off.

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

‘You’re Dead’

Vincent Lecorne, head of the government-funded transfer center, says many owners delay retirement and are uncomfortable making their departure public. That distorts the center’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 said.

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, said 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 said.

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 said. “There are lots of amazing companies already started.”

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