Business Issues Forecast for 2011

Businesses head into the New Year facing a diverse range of opportunities and risks. Members of our Business Group put their heads together and identified a few issues and opportunities that we see on the road ahead.

1. A good year for entrepreneurs considering investing in a franchise.
2. Increase in phased retirement for entrepreneurs.
3. Strategic investments in the SME sector heats up.
4. When interest rates rise, receivables will be stretched.
5. Increased investment in safety training needed.
6. Employers of all sizes to adopt social media policies.
7. Access to venture capital is improving.
8. Employers may face class action claims for overtime work.

1. A good year for entrepreneurs considering investing in a franchise
   Andy Scott
   The current economic climate could provide entrepreneurs looking at franchise investment with many strong options. Credit for franchise purposes is widely expected to become more available, interest rates remain low, as do many of the costs associated with operating a franchise, most notably the cost of commercial leases. In addition, many franchisors will be looking for post-recession expansion of their own businesses. These factors all make 2011 an excellent year for those considering purchasing a franchise.
   
   
2. Increase in phased retirement for entrepreneurs
   Michael Abrams
   The recession of the past few years saw the business value and retirement nest eggs of many entrepreneurs take a hit. Consequently, many business owners are now faced with the need to carry on their working lives longer than planned. However, an option that many of the entrepreneurs will be increasingly using is a phased retirement. This allows them to continue working, but in a reduced capacity while the ownership and management of the business are turned over to new owners over time. This approach is particularly effective when used in family businesses, but can be applied to other investors including senior managers who are looking to buy-out the current owner. Using updated shareholder agreements with appropriate buy-out and end-date clauses helps all parties understand each party's responsibilities and ensures the continued running of the organization in a professional manner.
   
   
3. Strategic investments in the SME sector heats up
   Don Burke
   The coming year may be pivotal for companies looking to grow through strategic acquisitions. The second half of 2010 saw the return of large-scale M&A activity and we expect this to spread to small and medium sized enterprises in 2011. While a valuation gap between buyer and sellers may continue to exist, we should see the gap shrink and common ground between both parties reached through earnouts and other techniques. Overall, the improvement in economic conditions should provide companies with the confidence to pursue opportunities. Those that continue to take a 'wait and see' approach may find desired targets poached by competitors.
   
   
4. When interest rates rise, receivables will be stretched
   Rick Brooks
   2010 saw modest increases in interest rates and further increases in the base rate are anticipated in the second quarter of 2011. These interest rate increases will often adversely impact day to day cash flow for many businesses. Reducing operating costs, reviewing compensation packages and ensuring the timely and effective collection of accounts receivable will help to offset the burden of higher rates. To reduce the potential for unpaid receivables, businesses should be putting in place pre-emptive measures ahead of any interest rate increases. Options to consider include reducing the length of payment terms; obtaining guarantees from the principals of customers likely to pose a problem in the future; and careful monitoring of all accounts receivable to identify problem accounts as early as possible. Rate increases may also negatively impact the ability to obtain the necessary funds to carry the business through periods of impaired cash flow. Businesses should consider reviewing their own borrowing requirements for the coming year to ensure that appropriate lending facilities are in place with their financial institutions before rate increases are introduced.
   
   
5. Increased investment in safety training needed
   Shawn O'Connor
   The Ministry of Labour amended the Occupational Health and Safety Act to provide protection from workplace violence in 2010 and has taken an increasingly hard line of prosecuting employers and supervisors when workplace injuries occur. At the same time, the WSIB has undertaken reviews of its calculation of employer premiums to charge higher rates to employers whose operations have higher risk of injury. Employers will have to spend more time on safety training and documentation of the training in order to comply.
   
   
6. Employers of all sizes to adopt social media policies
   Richard Sinclair
   Businesses of all sizes have jumped on the social media bandwagon by establishing a presence on Facebook, Twitter and elsewhere. But the high use of social media by employees and the direct link that can occur between a personal page and the page of an employer means there is a high risk that damage can be made to your firm's hard earned reputation. In a recent case in BC, the Court found that an employer was justified in firing an employee due to the posting made by the employee on their Facebook page. In 2011, employers who do not have a policy in place for social media use by employees should take the steps necessary to create and communicate the policy to their staff before a problem occurs.
   
   
7. Access to venture capital is improving
   J.P. McAvoy
   For the past few years, local entrepreneurs have been quietly developing their business and products knowing there was little in the way of venture capital available to assist with the growth of their business. But in the last few months of 2010 we were able to assist a number of clients prepare for and source private funding from a variety of sources. We expect this trend to continue to grow throughout 2011 as private capital slowly and carefully begins to make investments in promising business opportunities.
   
   
8. Employers may face class action claims for overtime work
   Shawn O'Connor
   There have been several decisions of Ontario's appellate courts which have made it easier for a plaintiff to obtain certification of a class action. The Divisional Court heard argument on two overtime class action suits in December 2010 and the decisions will clarify whether these types of claims are best heard as individual actions or as a class. If the judicial trend continues employers will find that they are facing claims for work done beyond the mandatory overtime threshold of forty four hours per week by non professional and non supervisory staff.