Economic Outlook

Impediments to SMB Growth

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Business Outlook from Bank of Canada

Innovation, Science, and Economic Development Canada released a detailed analysis on the profile of the recipients of the Canada Emergency Business Account.

The report presents a business profile of small and medium-sized enterprises that received loans from the Canada Emergency Business Account in 2020, a component of the federal government’s COVID-19 Economic Response Plan.   It provided partially forgivable interest-free loans to small businesses and not-for-profits to help finance their non-deferrable expenses.

The breadth of the database is statistically similar to the SMB community at large – giving us a unique insight into the sector. Key insights are helpful for us in managing our own businesses:

  • 38% of SMB’s reported zero or negative sales growth from 2019-2020, while 55% reported growth from 1%-20%.
  • In 2020, 33% implemented at least one new technology, and 31% implemented at least one new innovation.

The top 3 reported obstacles to growth in 2020 were:

  • Rising costs
  • Recruiting/shortage of labour
  • Retaining skilled employees

Strategic workarounds, as we see it:

  • Rising costs – diversify suppliers, optimize processes
  • Recruiting/shortage of labour – outsource to minimize labour costs
  • Retaining skilled employees – outsource to minimize labour costs

 

 

5 Practical Steps to Manage Inflation

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managing inflation

Inflation is a reality for businesses of all sizes and in all industries.

Impacts include increases in costs of raw materials, labour, transportation, and more.  Businesses of every size need to adapt and optimize their operations to stay competitive during inflationary times.

Here are a five strategies that businesses can use to optimize their operations during inflation:

  1. Diversify your revenue streams:
    • Diversifying your revenue streams can help to reduce your dependence on a single product or service and increase your resilience during inflationary times. This can include diversifying your product line, expanding into new markets, or developing new revenue streams through licensing or franchising.
  2. Increase prices:
    • Straightforward, it’s the first line of defense against rising costs.  The downside is that this approach can also lead to a decrease in demand for your products or services. It’s important to do market research to understand your customer’s willingness to pay and make sure that your prices are still competitive.
  3. Streamline operations:
    • Hunt-down and reduce waste, increase efficiency, and consider the benefit of automating expensive processes. Reducing costs will free-up internal cash, and ultimately make your business more nimble.
  4. Look for alternative suppliers:
    • Rising input prices can have a significant impact on your bottom line. To mitigate this impact is to look for alternative suppliers that can offer the same quality materials at a lower cost. This can also help to reduce your dependence on a single supplier and reduce your risk of supply chain disruptions.
  5. Invest in technology:
    • Investing in technology can help to increase efficiency, reduce costs, and improve productivity. High impact areas can include investing in automation, data analytics, and digital marketing.

 

Bank of Canada Business Outlook Survey – Q4 2022

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Business Outlook from Bank of Canada

The Bank of Canada recently released its Q4 2022 business outlook survey, the results of which show a pretty pragmatic view of the Canadian economy, and what to expect in the months and year ahead.

Highlights:

  • Most businesses surveyed expect a mild recession in at least the first half of the year
  • About 30% expect sales to decline this year/70% expect sales to be about the same
  • Reasons for slowing demand correlate with the consumer survey, namely pessimism around interest rates, uneasiness about employment stability, and concern about inflation
Based on this information, what should an SMB do this year?
  • Clearly, it’s going to be a challenging year – it’s always a good time to find waste and cut it out of your operation.
  • If sales are going to be static, it might be a good time to find/develop new products/services to lock in your customers for longer commitments, and at slightly higher average spends (always focusing on providing new value)
  • If you’re one of those businesses expecting a decline in sales, now is a good time to reach out to new geographies (which might be as simple as a neighbouring town), improve your digital-service capability, and reach new prospects digitally

You may also be interested in reading:

We’ve got ideas for you that’ll make a difference for you –  set up a call, and let’s talk your situation through:

Bank of Canada Survey of Consumer Expectations – Q4 2022

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Business Outlook from Bank of Canada

The BOC just released its benchmark Consumer Expectations survey from Q4, and, while the results aren’t necessarily surprising to anyone in the SMB community, they do present some opportunities.

First, the highlights:

  • Consumers have reduced purchases of discretionary items
  • Access to consumer credit has worsened, and real wage growth has declined, further pressuring households
  • Consumers are expecting a mild to moderate recession in the next year
  • While actual inflation has steadied, consumers are bracing for more to come
  • Spending on most items is reducing, largely because of inflation and general malaise in the economy

Read the whole report here.

Next: what should an SMB do about this?

  • Understand that your employees are very likely feeling this uneasiness, and respond accordingly
  • If you sell to consumers – or sell to businesses that sell to consumers – you can likely expect a hit to your sales.
  • If you are forecasting a sales decline, start thinking about sourcing new markets (we can help you here).  Think about augmented services to help you drive new revenue, selling in new territories, expanding your ecommerce capability, and trimming dead-wood products
  • Remember: consumers are cutting back, not cutting off, so stay positive, and keep an opportunity-forward perspective.

If you’d like to chat about opportunities for your business – send us a note below, and we’d be happy to talk:

Bank Loan Loss Provisions Up

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loan loss provisions

In this morning’s Globe and Mail, James Bradshaw reports ‘Scotiabank’s fourth-quarter profit slips on higher costs, increased loan-loss provisions.’

In his report, Bradshaw notes that “Provisions for credit losses spiked from ultralow levels last year”.  He goes on to note that “Scotiabank continued to face pressure on its profit margin on loans, with its net interest margin down four basis points”.

So what does this mean for SMB’s access to capital going ahead (even if you don’t bank with Scotia)?  We see at least the following key issues:

  1. Your rates will likely be going up on your next renewal
  2. It may be tougher to qualify for a loan
  3. If you don’t have your ‘ducks in a row’, you can expect to pay even more (see how we can help you)

Let’s talk about your financing requirements, and how we can help:

Will Your Customers be OK?

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economy - customers paying their bills

Despite the good news of the eventual easing of inflation (A Little Good News) viewable on the horizon, this doesn’t mean that your customers will emerge unscathed.

Jennifer Dowty has published an excellent article in this morning’s Globe and Mail (The consumer is about to be squeezed: What TD is now forecasting for housing, interest rates, and the loonie.‘) – I recommend that you read this article if you are a leader of a small or mid-sized business in Canada.

Dowty summarizes TD’s outlook over the next two years as being characterized by a contraction in consumer spending, a rise in unemployment, stagnant growth, while prices will stabilize somewhat.

Have you planned a sustainable path through this environment? We can help.

Let’s talk.

A Little Good News

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Good news on the inflation front

While we’re still struggling with inflation, there’s more good news on the horizon, from no less of a source than the Bank of Canada (October 26, 22 Monetary Policy Report):

“While inflation has come off its peak, it remains too high. As the economy responds to higher interest rates and as the effects of elevated commodity prices and supply disruptions fade, the Bank expects inflation to fall to about 3% in late 2023, then return to 2% in 2024.

Now is a good time to start detailed cash flow planning for the next couple of years.

Let’s talk:

3 Big Small Business Challenges

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Fitness Studio

I was driving home today while listening to the local traffic-specialist radio station.

They interviewed a local fitness studio owner who was incredibly, courageously candid about her situation:

  1. fewer customers
  2. tough to restart the business after lockdowns
  3. customers aren’t spending as much

None of these will be a surprise to any small business owner, but it’s still tough to hear.

If you find yourself in this situation, we can help by:

  • developing new markets (yes, we can even do it for fitness studios)
  • developing new services (yes, even fitness studios have more potential than exists just within their walls)
  • developing new revenue streams
  • providing financing
  • helping you take some pressure off by restructuring your financing

If you, or anyone you know is experiencing the ‘big 3’ challenges facing small businesses – we should talk.

Contact us here:

Strategies for Uncertain Times

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Strategies for Uncertain Times

There’s no doubt that we’re in uncertain times:

  • Inflation is up, but it seems to be declining
  • Unemployment is down, but layoffs in certain sectors are increasing
  • Demand is up, but supply chains can’t keep up
  • Small business is ‘critical to the economy’, yet 45% of online sales are dominated by Walmart, Costco, and Amazon
  • Stock markets are recently up, but are way down YTD

So what’s the best strategy for a small business to maintain sanity – and prosperity – going forward?

There are 2:

  1. Drive out all risk from your business: reduce your debt, don’t take on more, defer capital purchases, conserve cash, optimize every aspect of your operation
  2. Look at your markets differently: who are you serving and why? Is there another market that you could serve that is nearby, or accessible digitally, that would be interested in your product or service? Find a way to reach them.

We’re happy to speak with you about any of these issues, to make your business more profitable – quickly.

Pivoting to a New Market

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pivoting to a new market

I walked into a small business (a restaurant) near my home yesterday, and was saddened to see that I was the only one there.

While the restaurant may have been going gangbusters during lunch – it kinda had the vibe that they hadn’t really seen a customer in a while.

I asked the owner about their specialties – and ordered one as I enjoyed an early-afternoon coffee.  The owner and I chatted more, and it was just a few minutes before the ‘business is slow’-laments came.

We talked about the loss of traffic, then the shrinkage of average spend, followed by more loss of traffic, followed by missing their rent last month, followed by a piling-up of bills.

They’re drowning.

Yet, the restaurant is bright, cheerful, and the food is good.  What can they do if their relied-upon foot traffic has tailed-off, and shows little signs of life?

Pivot to a new market.

The idea of pivoting to a new market is pretty simple: take your core strengths, and find ways to leverage them to benefit new buyers.

The core strengths of restaurants are (in no particular order):

  1. They have a production facility (kitchen)
  2. They have some degree of market awareness (former customers, passers-by,  etc).
  3. There is some demand for their product (in this case, food) in other sectors and by certain user-groups (eg: providing coffee and catering services to local offices)
  4. There is demand by a bulk-buyer of product for at least one item that they have a unique control over the quality process, and can meet (at least in theory) any level of demand from their existing plant (eg: restaurants can look to commoditize the production of a single item – a specialty sauce for example – and make it available for sale by high volume food retailers, high volume fast food retailers, etc.)

Thinking about a pivot?

Let’s talk!