Sunshine Coast Small Business: A Looming Crisis?

[Skook]

There has been much ink expended on a looming crisis in residential real estate as baby boomers begin to contemplate downsizing or cashing out the equity in their homes. As these homes are thrown on the market, the questions raised are: a) how will this impact home prices and b) who will buy these homes.

What is not getting the same amount of attention is that thousands of small business owners throughout the province and across Canada are baby boomers, too. They are now preparing to retire and hope to pull out whatever equity they can after years of operation. This issue, as well, raises important questions: a) again, who will buy and b) if they can’t find buyers and shut the businesses down, what will be the financial impact not only on the owners, but on the communities dependent on these businesses. In cities with large populations, these issues may have little importance; however, the same cannot be said for smaller rural communities.

I have been following the commercial listings on the Sunshine Coast since last summer and this crisis has begun. I know from living on the coast that many of the businesses that have been put on the market are due to the owners wanting to retire and these listings aren’t moving. Now, this is a social issue the weekly newspaper should and could be writing about without losing advertising dollars.

There is one agency that has recognized this looming crisis - Community Futures. For those not familiar with CF and its role in rural communities, here is how it defines itself:

Quote:The Community Futures Network was established in 1985 by the Federal Government in response to the severe economic and labour market changes faced by rural Canadian communities. Each Community Futures office delivers a variety of services ranging from strategic economic planning, technical and advisory services to businesses, loans to small and medium- sized businesses, self-employment assistance programs, and services targeted to youth and entrepreneurs with disabilities. The Community Futures Network in British Columbia is comprised of 34 locally and strategically positioned organizations who share a common vision to create diverse, sustainable communities by supporting local, community based economic development. Since its creation, the network has had significant impact on the socio-economic development and diversification of the rural communities it serves.

CF’s response to this looming baby boomer crisis was to launch a project called ‘Venture Connect’ and that project has now been turned into corporate subsidiary of CF:

Quote:Venture Connect began as a project created in response to the challenge that over the next 20 years, there will be unparalleled shortfalls of both business owners and employees resulting in potential closure of large numbers of small businesses throughout the province. The project was supported by BC Ministry of Jobs, Tourism and Innovation, BC’s Small Business Roundtable, Island Coastal Economic Trust and six Community Futures organizations throughout Vancouver Island and the Island Coastal region (this includes Powell River and the Sunshine Coast). Now, Venture Connect is a corporation; a subsidiary of 6 Community Futures offices and is governed by a 12 member Board of Directors.

In 2013 Venture Connect established partnerships with a number of Community Futures and expanded its service delivery to the Southern Interior and Northern Regions of BC. It is anticipated that the service delivery will cover the province in 2014.

Two Venture Connect website blog posts from 2012 are worth quoting here for the statistics offered and the issues raised.

Quote:Projections for Rural Community Growth
Evelyn Clark
October 23, 2012

According to BC Stats, projected population growth for British Columbia between 2011 and 2036 is about 1.2%, significantly lower than the 1.7% experienced form 1985 to today. As well, it is indicated that strongest growth will take place in the Lower Mainland with rural growth, with the exception of the booming Northwest, will continue to age and population growth will slow.

What does this mean for rural communities given that a larger senior population has ramifications for small businesses, tax bases and community focus?

Currently people considered seniors in our world have perks that younger people do not. In British Columbia, seniors sail free on BC Ferries during the mid-week [Note: these free sailings will be eliminated tomorrow, April 1, 2014], they frequently have no-fee bank accounts, senior’s menus at many restaurants and small business discounts from 10 – 25%. In BC senior citizens currently receive a 49.8% grant on the property taxes. In 2036, almost a quarter of the residents of BC will be aged 65 and older. Can we then afford to given ¼ of our population the discounts offered to seniors in 2012?

Currently models for rural communities can be called a “growth” model. “Total growth in a community consists of the net employment and resident population effects of primary industry growth, service industry expansion, primary or indirect commercial development and primary or indirect residential development.” But what happens when our rural population flat line and our elderly population increases? Retirees have a different economic focus. Rather than growth, retirees often have an interest in maintenance. More retirees are mortgage-free, require less consumer goods than growing families and use service industries more often. As well, retirees require more medical services as they age.

All of these trends suggest that in aging rural communities it may not be business as usual. As our small business owners retire out of their businesses, communities and their leaders may have to look toward community inefficiencies and concentration of services rather than development of big box stores and far-flung malls.

Now is the time to prepare for the demographic shift in BC rural communities and take a pro-active stance in our community development plans. Communities will age, the population landscape will change. How we respond to those changes now will assist in creating vibrant communities for the next 20 years.

******************************

Rural Community Growth – Where Is It Coming From?
Lori Camire
September 13, 2012

Behind the Mainland, Vancouver Island ranks second in small business distribution by region at 18.1% of the businesses being small businesses, with small business employment impacting some 1,038,300 people in 2011. Vancouver Island and the Sunshine Coast are home to over 15,500 of those businesses impacting some 54,000 employees.

Combine those statistics with the projections that our population in Canada will flat line and British Columbia is slated to have a projected “elderly dependency ratio” of 44.6% - third highest behind Atlantic Canada and Quebec and one has to ask the question, “Well who will replace our population?” and “Where will our entrepreneurs come from?”

BC Stats has recently completed a study entitled BC and Regional Population Projections, 2011 to 2036 where they state that “The major factor driving population growth over this period will be migration to BC. International migration will account for 77.4% of the population gain, followed by interprovincial migration at 17.3% and natural increase (births minus deaths) at about 5.3%.”

According to the 2011 Census, British Columbia had some 1,170,000 immigrants with some 55% arriving from Asia, 31% from Europe and 10% from North and South America combined. Given that the first place most immigrants will land is urban centres, it may take some time for them to travel to rural communities. But inevitably they will leave urban centres for the promise of economic prosperity.

Immigrants have proven productive and innovative for Canada as confirmed by the recent Conference Board of Canada study that stated, productivity and innovation are critical for economic development. At every level of analysis, immigrants are shown to have an impact on innovation performance that is benefiting Canada.”

It is time to take a proactive attitude when it comes to shaping our economic future. David Turpin, and vice-chancellor of the University of Victoria states it best, “It speaks to the importance of reaching out to the world and indicating that BC is a place for the best and the brightest to come. Like modern economies everywhere, BC is counting on innovation and technology to raise productivity and help shape a bright and prosperous future.”

There has been quite a heated debate over immigration this past weekend on our sister site ‘Vancouver Condo Info’ and I have no intention jumping into the fray. What I will say, though, is that likely 99% of those offering their “opinions” live in the lower mainland and have no true appreciation of the looming crisis facing rural communities. New immigrants may be the only solution to saving rural economies and services.

Let’s return to Venture Connect. The purpose of its website in general is to match sellers of rural businesses with potential buyers. As of today, here what the website shows for businesses up for sale. On the left is BC as a whole and on the right the Sunshine Coast and eastern Vancouver Island. Note: these are only businesses that have posted to Venture Connect.

In the image below are actual SC and Powell River businesses currently for sale and posted to VC. The details have been uploaded by the owners or their Realtors; however, they represent a fraction of the businesses currently listed in both areas. (I see a Squamish biz snuck into the SC list - must be looking for an SC buyer - good luck.) In future posts, I will take a more in depth look at some of the Sunshine Coast business listings.

The following is a 2012 Community Futures video worth a watch. This is the description accompanying the video:

Quote:Since 1946, the baby boomer generation has been the single most power force influencing and changing culture, politics and the economy. The demographic shift that is taking place as baby boomers move into their senior years has far reaching effects. Boomers have powered growth over the past sixty years, but as they retire this group will begin pulling money out of the system rather than pumping it in, and where they put that money will be changing. There will be challenges and opportunities for all of us, our communities and our businesses.

I am going to conclude with a picture of three of the seven Sunshine Coast Volunteer Departments from a 2011 Coast Reporter special report. I don’t think I need to comment further except to say these photos highlight the demographic shift facing the SC and all rural BC communities.

[JimmyWW]

Hi Skook

This phenomenon became much more pronounced in the UK after the 2007-2008 financial crash. And forgive me, but as a Canadian/Scot I am going to insist on the UK being that country which is NOT London; how many times have I heard people say "Oh but I was in London last week and..." here in Toronto whenever I try to explain the mess Britain is in.

What happened was this; home equity collapsed by 30% in real terms, 15% unadjusted over 5 years. The effect has been MASSIVE closures in the retail and services sectors (and I mean Massive; at one point, there were firesales in liquor stores, etc, simply because the bank had pulled the plug and the companies were ruined). And a lot of that equity was held by boomers as you say.

However, as we now move to six/seven years after the crash, what's interesting is how both buyers and sellers of goods and services have simply downgraded their expectations. So whereas a restaurant meal for two might have cost GBP 30-50 in Edinburgh in 2007 (without wine) that same meal, with smaller portions and less fancy ingredients, can now be had for GBP 20-40. More specials and offers abound.

Overall, people have survived and -- this bit is anecdotal -- started doing more stuff that costs less, like spending time with friends and family instead of going on fancy skiing holidays, etc. I expect a similar pattern in BC and Canada in the period between now and 2020.

Trust me, some bits of it are truly horrible. But society comes out the other end poorer, yes, but arguably chastened and less pretentious and overblown.

Just my 0.02c!


Jimmy

[Skook]

Excellent post, Jimmy. Thanks for sharing this anecdotal evidence because like you I think it illustrates what is likely to unfold here; and I, think it is now underway.

Much has been written about the personal debt loads Canadians are carrying with the most recent update appearing in this CBC new story, ‘Consumer debt snowballs to $1.4T: Canadians' debt load rises 4.5% in 4th quarter of 2013 and 9% year-on-year’.

Quote:Total consumer debt increased by 4.5 per cent between the third and fourth quarters of 2013 and by 9.1 per cent when compared with a year earlier, when Canadians owed a total of $1.303 trillion.

…Canadians' debt load continued to grow last year in all respects, with credit balances, limits and volume all rising year-on-year.

The size of mortgage debt and instalment loans increased by about 12 per cent each between the fourth quarters of 2012 and 2013 while credit card debt was up almost six per cent, with Canadians owing $81.6 billion on their credit cards in the fourth quarter of 2013.

The rising debt load is "a number that seems to defy gravity," said Cristian deRitis, senior director of consumer credit economics at Moody's Analytics, in a news release. "Debt service ratios, however, are stable indicating that most households have adequate income to service their debts."

So, this news story seems to indicate Canadians are managing to meet their obligations and many RE blog commentators have queried, “How is this possible?” and “Why aren’t personal bankruptcies increasing?” Well, the answer to that last question appeared in a Globe & Mail piece two days ago, ‘Canadians opt to negotiate debt woes, skip bankruptcy’.

Quote:For the 12 months ending Jan. 31, total consumer insolvencies – which includes bankruptcies and proposals in which a negotiated deal with creditors is struck – decreased by 0.5 per cent compared with the 12-month period ending Jan. 31, 2013, says the Office of the Superintendent of Bankruptcy Canada.

But consumer bankruptcies decreased by 4.1 per cent, while consumer proposals rose by 4.8 per cent in the 12-month period.

The proportion of proposals increased to 41.9 per cent during the 12-month period ending Jan. 31, up from 39.8 per cent during the previous 12-month period.

One of the key reasons for the rise in consumer proposals is that personal bankruptcies became more expensive when the federal government brought in changes to the law in 2009…

Under the terms of a consumer proposal, an individual negotiates – with a bankruptcy trustee – to repay creditors part of his or her debt for a fixed period of time, or else the time given to pay off the debt is extended.

However, BC residents appear to be bucking this trend to negotiate debt, according to a March 11, 2014 Vancouver Sun, Barbara Yaffe story,‘Vancouver residents play with fire over debt’.

Quote:…B.C. is the only province west of Quebec that, in the past year, has not registered a decline in bankruptcies and consumer proposals (the latter involves a proposal for partial repayment of debt).

Now, what about businesses? I turned to the Office of the Superintendent of Bankruptcy Canada report that is the basis for the March 31st Globe & Mail story. (Highlighting is mine own)

Quote:The total number of insolvencies (bankruptcies and proposals) in Canada increased by 8.2 percent in January 2014 from the previous month. Bankruptcies increased by 2.3 percent, whereas proposals increased by 16.5 percent.

The total number of insolvencies in January 2014 was 5.4 percent lower than the total number of insolvencies in January 2013. Consumer insolvencies decreased by 5.6 percent, while business insolvencies increased by 1.3 percent.

Business insolvencies for the 12-month period ending January 31, 2014, fell by 0.4 percent compared with the 12-month period ending January 31, 2013. The three sectors that registered the biggest decrease in the number of insolvencies were construction, transportation and warehousing, and retail trade, whereas the accommodation and food services sector experienced the biggest rise in insolvencies.

So, Jimmy it looks like Canada is well on its way to mirroring what occurred in the Britain after the 2007-2008 financial crisis. Thanks for drawing our attention to the future. I think your $0.02c worth has jumped substantially in value.

[JimmyWW]

I blush, sir Skook - but thanks anyway. Of course, the big difference between the two countries is the functioning primary manufacturing/extractive industries economy in Canada, better immigration controls, lower debt and deficit levels and an absence of overdependence on financial services. So overall I would expect the impact to be less pronounced. I am of the view, by the way, that the UK government very narrowly avoided complete economic collapse in 07/08 - so saying that the impact will be less pronounced is arguably saying less than people might think.

Let's see what happens!

Jimmy

(04-02-2014, 09:31 AM)Skook Wrote: Excellent post, Jimmy. Thanks for sharing this anecdotal evidence because like you I think it illustrates what is likely to unfold here; and I, think it is now underway.

...

So, Jimmy it looks like Canada is well on its way to mirroring what occurred in the Britain after the 2007-2008 financial crisis. Thanks for drawing our attention to the future. I think your $0.02c worth has jumped substantially in value.

[JimmyWW]

Guys

Wanted to follow with another anecdote from what Garth T calls "godless 416" - downtown Toronto...

We live in High Park, one of the better, but by no means Rosedale or Bridle Path, 'hoods in TO. Anyway, the recent exchange of posts with you guys led me to some musings as I was out and about getting groceries with my wife and our little one. I decided to tally up failed businesses on our local high street.

The short answer is five businesses have gone down since the start of the year out of perhaps 40 in that precinct. What's of note, maybe, is that four of those failures have been in the past month. Also, two or three other stores are taking "extended breaks for family reasons" - there seems to be a lot of that about - do you not pay taxes as a small business owner in TO if you are not operating? I guess it would make sense if you are not getting paid. also you don't have overheads if you shut up shop and go away for two months.

A further 0.02c from this exiled BC person -


Jimmy

[Skook]

Hey Jimmy,

Sorry for not being able to respond sooner. I was wondering about those 5 businesses that have shut down for good - can you recall what type of business they were; just curious.

As for those businesses on extended leave, I was thinking if you have high overhead and low sales then you likely don’t have staff to cover you if you want to take off on holidays. Or, if you do have any staff, you would they might lay them off while away. Or, if those few months after the New Year are traditionally slow, it might be more cost effective to shut down for those months. Pubs & Restaurants in the Pender Harbour area and north to Earls Cove and Egmont have been doing that for years. They usually begin closing after September and may not open again until mid- May.

There would be no break on your business taxes to the municipality. You would have less income tax to pay at the end of the biz year. No credit card fees to pay but you would still have to pay for the terminal rental if you don’t own it outright and those credit card accounts often have a monthly minimum especially for debit cards . Your bank biz account fees would still need to be paid each month. You would still have to pay your rent, water, min hydro and heating costs, phone bill. I know all about the operation cost of running a small business - the most depressing costs are those banking and credit card fees. So, these businesses must be able to manage on 6- 10 months a year, I guess.

Did you really blush?

[JimmyWW]

Hi guys

Over the last week there's actually been another two business failures - a roast chicken shack and a budget clothing retailer (and I mean budget - selling overstock out of boxes, etc).

The ones that have closed apart from these have been: a guy who ran a place called "The Pie Shack", which basically reheated and sold fruit pies made elsewhere at huge profit with lousy coffee and lipton's ice tea from a can; a great central American cafe whose owners pulled the "family emergency" ace from the hole (possibly true in this case, since the workers there seemed to have no idea); a West Indian roti shack and another clothing retailer.

So very much what are, as I said to my wife, "boom businesses" - ie stuff that goes well when folks have money to spend. My next hunch is probably just because I'm looking for it, but I sense/smell a tapped out consumer here in TO. I also note listings on Bowen are up 5% this week alone to 77, and there's a lot of what one might call week-old fish in there: things that didn't sell last year or the year before which are back on. In one case, the price for an estate is now off from $3m last year to $2m this - 33% drop, but still way, way out of my price range.

I stick with my estimate, made elsewhere in the blogging community, that some of the more outrageously-priced homes in Greater Van, esp burbs, are going to see drops in the order of 70-80%. But all that will speak to is the nuttiness of the now-fading pricing order...

Jimmy, your correspondent in Godless 416...

[georgie girl]

(04-02-2014, 01:27 PM)JimmyWW Wrote: I blush, sir Skook - but thanks anyway. Of course, the big difference between the two countries is the functioning primary manufacturing/extractive industries economy in Canada, better immigration controls, lower debt and deficit levels and an absence of overdependence on financial services. So overall I would expect the impact to be less pronounced. I am of the view, by the way, that the UK government very narrowly avoided complete economic collapse in 07/08 - so saying that the impact will be less pronounced is arguably saying less than people might think.

Let's see what happens!

Jimmy

(04-02-2014, 09:31 AM)Skook Wrote: Excellent post, Jimmy. Thanks for sharing this anecdotal evidence because like you I think it illustrates what is likely to unfold here; and I, think it is now underway.

...

So, Jimmy it looks like Canada is well on its way to mirroring what occurred in the Britain after the 2007-2008 financial crisis. Thanks for drawing our attention to the future. I think your $0.02c worth has jumped substantially in value.

---

so we have a reported sale of small businesses of between 15-30 sold since january to off shore individiuals from China....Sechelt Golf Club, large land deal in Tuwanek and any number of small businesses which is the Federal government program of doing this allows you to enter Canada....not sure of details but i have heard the business must sign a contract and offer to train for a year.....buyer must run business for 2 years and then walk away....its a way to get into Canada..these by the way are just what i heard and not official....i have a list personally of 10 businesses....a friend of mine told me she could not sell to the Chinese who are coming in droves to the Sunshine Coast because the business had to be in existence for 5 years.....So what does this mean>>>>problem here is their is no knowledge outside of Sunshine Coast that it exists.....zero marketing... Lots of talk of building bridges, tunnel etc....but i have been in ad agency business for 30 years and see nothing going on to attract people.....will the chinese stay on the coast? or simply leave after required time period and go to Vancouver and Richmond.....Real estate is depressing....i see no catalyst for improvement...welcome comments

[BGW656]

I think you've hit the nail on the head. We're merely seeing a variation of the Hong Kong brain drain of the 80's.

With 1997 looming those that had money, blood relations in Canada or qualified through other schemes emigrated to Canada in droves. Some bought businesses they knew they weren't qualified to run - but considered it the cost of getting a new passport. It was money down the drain to them.

They put in their 3 years (actually most didn't. They'd fly in, get their passport stamped, travel to Seattle, fly out and return to Canada via Seattle - while appearing to stay in Vancouver to meet residency requirements) got their Canadian passport and headed straight back to HK to pick up where they left off. There was little commitment to Canada or the business they had bought.

While selling to a Mainland buyer might be a relief to the business owner selling, there will be little benefit to the Sunshine Coast community over the long term. The Golf Club will likey be okay as I believe this is a consortium buy and a business investment - not an individual looking for a passport.

[RFM]

Report from a friend who regularly visits Victoria:

"Back from Victoria last evening. Warm and swarming with tourists and tour bus groups. Retail must be slow, as both many vacancies and “clearance” sales on Government St. One merchant I know told me that there is little tourist spending.... The cruise ships are catering to mom and pop who have no extra money for overpriced stuff..."

I find these 'anecdotal' reports more revealing than lots of 'official' research reports that everything is fine...