“Be confident.” That’s the message of hope that Lucien Bouchard recently shared with business people attending an online meeting hosted by our firm.

Acknowledging that these are very difficult and uncertain times, the former Quebec Premier said he believes that entrepreneurs and the general public have every reason to be optimistic.

“The potential is there for a truly extraordinary economic reopening. If we create the right conditions, we’ll enjoy a full recovery,” said Mr. Bouchard during an exclusive conversation with Emilio B. Imbriglio, President and CEO of our Firm.

Without going so far as making predictions, Mr. Bouchard remains convinced that “a surge of enthusiasm” will occur once people are able to start socializing, going to work in-person, travelling, enjoying cultural activities and dining in restaurants. “This individual enthusiasm will be matched with an economic boom,” said Mr. Bouchard, who is a partner at Davies Ward Phillips & Vineberg, a law firm.

He offered a clear message to entrepreneurs and young people: be confident, be prepared and be ready to adapt. Emilio B. Imbriglio agreed that these qualities are key for overcoming the challenges that inevitably occur at some point in a business’ lifecycle.

Quebec and Canada are wealthy and full of promise, stressed Mr. Bouchard. “Things are looking very good for the future of our younger generations,” he said.

Even though both the provincial and federal economies are in a good position to bounce back, he acknowledges that the public finance situation is currently raising a lot of questions. The situation has changed due to the pandemic and achieving a balanced budget is no longer the top priority.

“As it stands, governments can’t predict when we’ll be able to return to balanced budgets. This means public finances will need to be managed differently. It is sure to be a delicate matter,” explained Mr. Bouchard.

“However, we should be confident knowing that, since 2008, the international financial community has learned to work together.”

At the same time, he’s urging governments not to jeopardize the economic recovery by increasing the tax burden on businesses and individuals.

A lesson in leadership

According to Mr. Bouchard, the COVID-19 pandemic has given us the opportunity to learn a lot about ourselves. It has also reminded us how important interpersonal relationships are. That’s why nurturing connections with family, friends and colleagues is essential. “Having good team chemistry is fundamental.”

The pandemic has also highlighted the importance of strong leadership. Mr. Bouchard praised Premier François Legault for confidently handling the crisis, which he describes as very different from the ice storm that occurred in January 1998, when he headed the Quebec government.

In his view, François Legault is “the man of the hour,” who was ready and able to lead through the current crisis thanks to his experience in the private sector and in politics. The former Premier believes that having a solid background, a strong work ethic and a practical approach are what made Mr. Legault an exemplary leader.

“The most important qualities for a business leader to have are to be very well prepared, to have outstanding communication and listening skills, and to be able to keep a cool head,” said Emilio B. Imbriglio, adding that using a strategic approach to overcoming difficulties is also important.

The convergence of several critical issues

The pandemic accelerated a number of trends that were already emerging within the business world, such as the transition to e-commerce.

“We’re going to see an increased reliance on digital technologies; it’s inevitable. But does that mean traditional sales will disappear completely? Not necessarily. We mustn’t overlook the importance of human interactions,” said Mr. Bouchard, who believes that consumers will always want to be advised in person and to view certain items with their own eyes before making a purchase.

During the webinar, Mr. Bouchard also discussed several other important issues, including Canada-U.S. relations. “We need to restore a friendly relationship [with the United States], and let that translate into economic benefits,” he said, recalling the good working relations that existed between Prime Minister Brian Mulroney and the Republican presidents in the 1980s.

Mr. Bouchard also confirmed that the environment is another critical issue. “We’ll need to make sizeable investments if we want to address environmental concerns.” However, there’s no easy way to meaningfully tackle climate change while pursuing economic growth at the same time. “We need to rely more heavily on science, because that’s the only way to develop truly renewable and economic energy.”

Diversity is another key issue. “We need immigrants. We need to accept interculturalism and manage it effectively,” he said.

With regard to women in decision-making positions, he sees progress being made and a real desire to give more opportunities to female leaders. That said, he’s not convinced that implementing coercive measures (such as quotas) is the most effective way to increase female representation. He believes that “the main driver behind gender balance will be the achievement of a critical mass of qualified women, a phenomenon that is undeniably occurring and extremely positive.”

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Are your company’s finances deteriorating? Consider restructuring to get your business back on track to profitability.

Don’t wait for the situation to get worse. Be proactive and act before it’s too late.

To respond in an appropriate and timely manner, you need to pay attention to the warning signs and take them seriously. Issues to watch out for include rapid growth, decreased profitability or repeated losses, loss of an important client, major quality flaws or underperforming financial systems, to name just a few.

These events in the life of a business, if not adequately addressed, can lead to cash flow shortages with many serious consequences:

  • Difficulty paying invoices and salaries;
  • Failure to comply with financing conditions;
  • Deteriorating financial ratios;
  • Financial reporting that is inaccurate and not up to date;
  • Significant rise in employee turnover.

It’s important to watch out for the warning signs and act as quickly as possible to avoid a liquidity crisis. The longer you wait, the fewer tools will be available to help your business.

Diagnose the issue

The first thing you need to do is perform a realistic assessment of the situation.

1- Analyze the situation

Analyze the operational situation for each business unit as well as the financial structure. Doing this will help you identify the source of the issues. You should review every single department and each employee, looking at all the relevant expenses, tasks and operational processes. It’s also important to verify that all your equipment is working properly and efficiently.

2- Consult with your employees

Don’t forget to ask your employees for their input. They can point out deficiencies and suggest solutions.

3- Prepare a cash flow projection

The next step is to create your short-term (3 month) cash flow projection and identify your borrowing capacity. Maintaining positive cash flow is key to your restructuring plan because it will give you the time you need to straighten out your company’s finances. This short-term cash flow projection is critical. It will indicate how much time you have left to act before your business runs out of funds.

4- Evaluate long-term viability

Finally, evaluate the long-term viability of your business by establishing monthly (for the first year) and annual financial projections. Simulating a range of scenarios will help you determine how much financial leeway you have and what you need to do in order to maintain a sufficient profit margin.

Ask for help

Restructuring is a complex and demanding process. You’ll have your hands full managing emergencies and day-to-day activities.

Get an expert to guide you

Working together with a restructuring specialist is highly recommended. They’ll be able to objectively analyze your situation and guide you through all the steps that are new to you.

Form a crisis management team

At the same time, set up a crisis management team and simplify the governance structure to make it more agile.

Get the support of your bank

Another key point is to get in touch with your bank as soon as possible. Explain the situation and tell them how you plan to get your business back on track. Ensure that you have their support.

Don’t forget your partners

Pay particular attention to your relationships and communications with suppliers, clients and employees. They are key stakeholders in the success of your restructuring plan.

The keys to successful restructuring include swift action, not being complacent and addressing real problems, and maintaining seamless communications with all stakeholders.

Restructuring measures

Next, you’ll need to prepare and implement various restructuring measures, which can be either operational or financial in nature.

Operational measures:

  • Review your business plan;
  • Closely examine each department to identify areas where you can reduce expenses. Make sure to carefully analyze the impact of each reduction. For example, what would happen to sales if you cut your advertising budget?
  • Shut down unprofitable divisions following a detailed profitability analysis;
  • Analyze the profitability of contracts in order to modify or terminate those that aren’t profitable. For example, you might decide to reduce the number of products sold to a client and only maintain those that are profitable;
  • Discontinue products or services that are not profitable or that contribute very little to your business objectives;
  • Review your operational processes;
  • Renegotiate property leases;
  • Renegotiate working conditions or collective agreements with employees.

For these measures to be effective, you’ll need to establish an action plan outlining specific objectives and follow up periodically to update your plan as needed.

Note that laying off employees and terminating business contracts or commercial leases can be very costly and can compromise your company’s restructuring plans.

Financial measures:

  • Review your working capital management strategy so you can quickly free up cash and have the time to restructure the business. Try to negotiate longer payment terms with your suppliers and shorten payment terms offered to your clients (for example, by offering rebates);
  • Restructure your debt by renegotiating terms and interest rates on loans;
  • Sell or liquidate surplus inventory.

Two restructuring approaches

If you want to ensure the survival and future feasibility of your business, you’ll need to reach an agreement with your creditors. There are two possible approaches:

  • The informal approach, outside the legal framework;
  • The formal approach, as laid out in the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA).

The informal approach

  • The procedure is confidential. That means you can negotiate an agreement with one creditor without the other creditors finding out the conditions you agreed on;
  • Applies to simple situations;
  • Applies to renegotiations with a single creditor or a small group of creditors with similar interests (for example, renegotiating contracts);
  • The company should have a detailed and comprehensive business and restructuring plan (timeline, restructuring costs, etc.).

The formal approach

  • For situations where the company is insolvent but has the potential to become profitable again thanks to a restructuring plan. Being insolvent means no longer being able to pay your debts on time or having more liabilities than assets;
  • Public procedures governed by the provisions of the CCAA (for companies that owe more than $5 million to creditors) or the BIA;
  • Protects your assets from being seized by creditors;
  • The legal proceedings must be initiated by a Licensed Insolvency Trustee (LIT).

Once the LIT submits the required legal documentation, your liabilities are automatically frozen and you are protected from legal action by creditors. This will give you the time to prepare a restructuring plan with the help of the LIT.

You will also put together a proposal or arrangement with your creditors. On average, accepted proposals represent 8% to 10% of the total amounts due.

The proposal is then submitted to a vote by creditors. To be approved, the creditors must accept the proposal by a majority in number (50% +1) representing at least two thirds of the value of the voting claims. The proposal is binding on all creditors. In the vast majority of cases, proposals are accepted.

If the proposal is accepted, directors may be discharged of their liability for unpaid government debt (sales taxes, etc.).

Do you have questions or need advice on how to turn around your company’s finances? Contact our experts today!

This article was written in collaboration with Ayman Chaaban.

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Investors, clients and governments are increasingly demanding: businesses must place sustainability at the heart of their business model.

A recent study sheds some light on businesses’ concerns with regard to the environment and sustainable development. What are the benefits and what concrete actions can businesses take to adopt a more environmentally responsible approach?

Over the course of the past decade, the importance of sustainability has increased significantly all over the world – not only in terms of how individuals live their lives, but also how governments frame policy as well as how businesses develop operating models and plan for the future.

The ongoing pandemic, meanwhile, has produced a paradoxical challenge for mid-market businesses. And despite COVID-19, the need for action on sustainability has never been more urgent.

Emilio B. Imbriglio, President and CEO of Raymond Chabot Grant Thornton said: “A consensus is emerging on the importance of acting to preserve our environment. Integrating sustainability into an organization’s business strategy has become a must for the continuity of organizations and to maintain our economy’s vitality. It is a responsibility of business leaders to influence all stakeholders. It is also an opportunity for local businesses to develop new markets.”

Linda Mannerby, Head of Sustainability at Grant Thornton Sweden, explains, “Companies that understand global challenges and risks, adapt their business models, and manage their business impact – both positive and negative – have a greater opportunity to survive long-term.”

Sustainability in the mid-market

It is clear that sustainability has become a strategic focus for blue-chip businesses. In line with the UN’s Sustainable Development Goals, the likes of Shell, Unilever, Microsoft, Apple and American Airlines – to name just a handful – have all recently announced plans to reduce their net carbon dioxide emissions to zero within the next few decades. Grant Thornton’s IBR research has focused on the extent to which mid-market companies are embracing sustainability.

The findings show that a significant proportion of mid-market businesses are attuned to its importance: just under half (48%) believe sustainability will have a net positive financial impact on their business, while a similar number (47%) expect a sustainable approach to lead to improved operational efficiency and lower costs. Meanwhile, 43% say financial success and sustainability are of equal importance.

The mid-market is clearly attuned to the growing importance of sustainable businesses, but the data also suggests that many mid-market firms are unsure of how to put any commitment to sustainability into practice. 48% agree that most companies of their size don’t know where to start when it comes to sustainability measurement.

Another notable finding is that businesses in emerging markets are prioritising sustainability issues to a greater extent than their counterparts in developed economies, and also expect a greater positive financial impact from integrating sustainability.

Why embrace sustainability?

One of the key motivating factors for mid-market businesses to make sustainability a guiding strategic principle is the growth opportunities this kind of approach can create.

One of the number one motivations for integrating sustainability into strategy is to obtain investment, as year on year there more capital in the world is allocated in accordance with sustainability parameters. Many investors and banks also use sustainability as a proxy for a company’s approach to risk management.

And this may be one factor underpinning the fact that businesses in emerging economies are more likely to prioritise sustainability.

The Quebec government is reportedly being drafted a bill with the objective of introducing ecological criteria in future calls for tenders, according to the Chair of the Conseil du trésor, Sonia LeBel. These criteria have yet to be defined, but this is another indicator that the environment is an issue that companies must take into account now in their growth strategy. This becoming an essential consideration for an organization in order to remain competitive.

The government’s initiative echoes the 2030 Plan for A Green Economy presented in March 2021, which confirms a consensus on the importance of taking action to preserve our environment and, by extension, maintain a viable economy.

Integrating sustainability into core business strategy also drives innovation and ultimate business growth, explains Katerina Katsouli, ESG & Sustainability Director at Grant Thornton Greece. “Increased innovation results in a boost to sales, contributing strongly to business growth. Sustainable and socially responsible companies can establish a clear point of brand differentiation, helping shield them from lower-cost competitors.

“These businesses also stand to gain great value when it comes to reputation. They are better able to build trust with stakeholders, gain willing recommendations from clients, and protect themselves from scandals, regulatory challenges and other reputation-busters.”

The impact of taking a sustainable approach

As the trend towards sustainability gathers pace, says Emma Verheijke, Partner Sustainability & Impact Advisory at Grant Thornton Netherlands, mid-market businesses simply cannot afford to be left behind.

“What we see in the Netherlands and across Europe, is that there are more and more drivers accelerating this transition, from finance and employees to customer sentiment and even public-tender rules. So if you are not going to make this transition and embrace sustainability, is your business going to be future-proof? Are you going to be around in five years?”

Emma Verheijke adds: “I’m not sure this concept has really landed yet – and I think a lot of companies will start to feel the pain of not making this transition quite soon. Sustainability is no longer a nice project on the side: it is part of your core strategy. It affects your risks, your opportunities, your long-term planning, how you deal with your people, your resources and your suppliers, as well as consumer demand. Companies that see that and anticipate these issues will be the ones that have the most value in the future.”

Indeed, the IBR found that almost two-thirds (61%) of mid-market businesses think that global sustainability trends will demand fundamental changes to operating models in their industry.

Valentina Yakhnina, Sustainability Manager at Grant Thornton Israel, adds: “A side effect of becoming more sustainable in terms of your resource management is that you can increase efficiency and reduce costs – for example, if you make the effort to reduce the amount of materials you use, or find new ways to reduce waste.”

The obstacles to becoming more sustainable

For many businesses in the mid-market, the financial outlay required to implement a sustainability programme is a major hurdle to overcome – and one which has become even more of a problem as a result of the financial pressures around COVID-19.

Julia Höglund, Sustainability Advisor at Grant Thornton Sweden, says: “The biggest challenge is short-termism. Even if we don’t want to be, we are still in a system where we are pushed to deliver on quarterly financial targets, and this is still driving the change within companies. The question we usually get from clients is, ‘What is the return on this investment?’ This is sometimes difficult to answer in financial terms because it is dependent on so many global and consumer factors. What we can measure however is the return on investment across ESG (environmental, social and governance) activities, which may have an impact on overall financial performance.”

Identifying value

Sue Almond, Global Head of Assurance at Grant Thornton, says that the IBR’s findings, which found many firms draw a strong link between sustainability and financial performance, were particularly encouraging. She explains: “Financial performance of the business underpins its own sustainability. So if there is a clear line of sight from sustainability actions to overall financial performance of the business, then you have that business imperative: this is how you win hearts and minds.”

Markus Hakansson, Head of Sustainability Business Advisory at Grant Thornton Sweden, adds: “Your ability to create value as a company is not dependent only on financial factors. Non-financial factors – social and environmental – are connected to 80% of the company’s ability to create value and in the end, value is money. But this value – which can be the knowledge of the employees, or structural capital – can be held in the company for many years before it becomes cash. Understanding this concept of sustainability can be a problem for the board and owners.”

First steps in sustainability

Julia Höglund says that the key to working out what a business’s sustainability goals is opening up a dialogue with stakeholders. “This is all about finding out what stakeholders really demand,” she explains. “These stakeholders range from investors and lenders to customers, employees and the wider public.”

According to the IBR, 49% of mid-market businesses expect to face more pressure from existing and future talent to become more sustainable in the year ahead, while 55% expect to face more pressure from their customers.

According to Linda Mannerby, businesses need to assess their current position in terms of the environment and society. “You need to understand where the positive and negative impacts are,” she explains. “One of the simplest ways of doing this is by mapping your value chain: this kind of impact analysis can help you reach out to board members, raising awareness and identifying risks.”

Businesses need to be clear from the outset as to what they are trying to achieve through becoming more sustainable, Emma Verheijke says. “Is it compliance? Communication? Financing? Attracting and retaining talent – or all of the above? Because that is going to dictate the direction you are going to take.”

Once goals and material impact areas have been established, businesses can decide which reporting and assessment frameworks fit best, she adds, rather than starting with a particular framework or methodology and working backwards.

Placing sustainability at the centre of strategy

Ultimately, Markus Hakansson says, sustainability concerns should be placed at the centre of all decision-making within the company. “It is not just about putting sustainability into the business model: it also needs to feed into the strategy, tactics and operations,” he explains.

“In the perfect situation, every decision on the tactical, operative and strategic level should be made on the triple-bottom-line basis, taking into account its environmental, social and financial impact.”

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This first budget from the Canada’s Finance Minister of the Liberal minority government is part of an economic stimulus… and green plan!

With a general election potentially looming, the Minister of Finance, the Honourable Chrystia Freeland, is keeping the floodgates of economic aid open with a three-year, $100 billion stimulus plan, but without any short-term measures to put public finances in order.

This translates into several important investments to the benefit of numerous taxpayers, especially SMEs, the country’s economic driving force.

Recovery stimulus: A few key measures

Emergency Business Support

Measures for businesses include extending the Canada Emergency Wage Subsidy, Canada Emergency Rent Subsidy and Lockdown Support to September 25, 2021. In addition to the previously announced extension of the Canada Emergency Business Account, these extensions represent $12.1B in additional support.

Recovery Hiring Program

Furthermore, the government is creating a Recovery Hiring Program which will run from June to November 2021 and provide $595M to make it easier for businesses to hire back laid-off workers or to bring on new ones.

Canada Digital Adoption Program

The federal government is injecting $4B to help some 160,000 Canadian SMEs invest in new technologies and innovation. The Canada Digital Adoption Program will also provide businesses with the advice and help they need to get the most out of these new technologies. The program will make it possible to train 28,000 Canadians – a Canadian technology corps – and send them out to work with SMEs.

Zero Net Accelerator

In terms of green recovery, the budget is proposing an unprecedented $5G investment over seven years, starting in 2021-2022, in Net Zero Accelerator. This support is on top of the $3B announced by the government to encourage even more businesses to invest in reducing their greenhouse gas emissions.

Some tax measures

With respect to the capital cost allowance, the budget is authorizing the immediate expensing of up to $1.5M of eligible investments by Canadian-controlled private corporations for each of the next three years. These significant deductions will help 325,000 businesses make essential investments and achieve overall savings of $2.2B in the next five years.

Tax on digital services and luxury goods

The budget is also proposing to introduce a Digital Services Tax to ensure the services pay their fair share. This 3% tax would apply on revenue from digital services that rely on Canadian data and content. This measure would make it possible to raise $3.4B in revenue over five years beginning this year.

A new luxury tax is introduced. The tax would apply to the purchase of automobiles and private aircraft worth more than $100,000 and pleasure boats worth more than $250,000. This should bring in tax revenue of $604M over the next five years.

Public finances: Situation and prospects

The 2020-2021 deficit is now $354.6B, whereas it was expected to be $154.7B by the end of 2021-2022. The budget is not expected to be balanced in the medium term and the deficit for fiscal 2025-2026 could be $30.7B, that is slightly less than the pre-pandemic deficit of $39.4B in March 2020. The federal debt would rise from $1,079B to $1,411B by 2026.

Raymond Chabot Grant Thornton had recommended in its pre-budget recommendations, bold tax measures that would apply temporarily to increase the collection of unrealized taxes at a lower rate, thereby enabling the government to collect additional income on the near future, without increasing Canadian taxpayers’ taxes. The funds could be allocated to reducing the pandemic debt.

For more information on the tax measures announced in the 2021 federal budget, please read our Tax bulletin.