The projections are not optimistic for the most of Canada’s over 1.1 million small businesses facing almost empty hotels, stores, and dining rooms and trying to stay afloat amidst an ongoing pandemic. Even those that survive will suffer the impact of an unprecedented recession and economic downturn in the foreseeable future.
Why Is It Important That Canadian Businesses Stay Solvent?
As in most parts of the world, small businesses are the backbone of the economy and the driver of long-term growth. In Canada, they account for 60 percent of job openings and 40 percent of GDP or at least before the onset of the pandemic. About 99 percent of SMEs have fewer than 500 employees but they are employing more than 89 percent of the working population. In short, medium-sized and small companies help create jobs, pay municipal taxes, support local communities, and drive innovation.
How Businesses Fare
A study conducted by RBC found that companies in sectors such as administrative services, wholesale trade, and technology are facing lower risk as it is easier for them to offer services and products and maintain social distancing measures. Businesses in other sectors are more vulnerable, including commercial real estate leasing, oil and gas and mining, non-essential retail, entertainment and arts, and accommodation and food services. These sectors employ some 1.2 million workers. According to RBC, GDP in the sectors that are the most affected is expected to stay up to 50 percent below February 2020 even once the economy starts to reopen and rebound.
New trends have emerged on a global scale, and Canada is no exception, from shifts in consumer behaviour and an increased focus on domestic procurement and local produce to deglobalization and diminished reliance on extended supply chains and more digital delivery.
What Small Businesses Think?
A poll by the Canadian Federation of Independent Businesses found out that 181,000 small firms consider permanently shutting down, with job losses estimated at 2.4 million. This is in addition to the 58,000 businesses that closed permanently in 2020. The federation estimates that the number of vulnerable firms ranges between 7 and 21 percent or 71,000 and 222,000, respectively. Most businesses that are contemplating permanent closure are in the recreation and hospitality sectors, including arcades, recreational venues, gyms, caterers, hotels, and restaurants.
Only 36 percent of small firms are operating fully staffed, down by 5 percent since November 2020. Less than half (47 percent) work at full capacity compared to 62 percent in November. The figures are even lower in provinces and territories where tougher restrictions have been implemented. In Ontario, for example, fully staffed businesses account for just 32 percent while the share of firms that are fully open is only 37 percent. The survey results also show that small companies in Ontario and Alberta are at a higher risk of closure. About 20 percent in Ontario and 22 percent in Alberta are contemplating filing for bankruptcy. Businesses with the highest percentage of potential job losses are found in Alberta, Saskatchewan, Prince Edward Island, and Newfoundland and Labrador, ranging from 12 to 16 percent. Those with the lowest share are operating in Quebec and Nova Scotia, with 4 and 2 percent, respectively.
Businesses in information, recreation, and arts (28 percent) and the hospitality industry (33 percent) face the most risk. Sectors that remain relatively stable include professional services, real estate, insurance, and finance, manufacturing, and natural resources and agriculture.
Even those that stay afloat during the pandemic are expected to incur sizable debt worth $117 billion. According to Dan Kelly, president of CFIB, staying open means losing money every day for the majority of small businesses.
Another poll conducted by CIBC shows that 68 percent of small firms are still struggling due to the global crisis, and only 43 percent are on the path to recovery. The main concerns they share include overall viability (23 percent) and lower demand for their services and products (37 percent). To survive the pandemic, companies are adopting different approaches and strategies, a major trend being shift to digital. About 16 percent of firms are currently operating online while 30 percent are increasingly relying on online sales. More than half of the business owners share that they have used financing under one or more government programs to increase their cash flow. Nearly 1/3 of companies admit to being forced to cut employee hours while over 1/3 made changes to minimize operating expenses. More than half of businesses say that they rely on government assistance to stay afloat. For the majority of firms or 72 percent stress levels are considerably higher than before the pandemic, mainly due to the uncertainty of the environment they are forced to operate in.
What Businesses Can Do
To head down the path to recovery, small firms will need to adapt to a post-pandemic economy and bake flexibility into their long-term strategies as to build robustness and resilience. As they are facing a transformed work environment, some may embrace remote working while others will need to rethink the workplace in order to ensure a gradual return to work.
More and more small businesses are relying on local supply chains to increase flexibility and avoid losses due to delays and disruptions. This trend is more likely to continue at least in the short term. Companies are increasingly coming to realize how important it is to have working scenario planning and forecasting strategies to deal with economic uncertainty and operate in a radically transformed world. Small businesses will also need to adapt to shifts in consumer behaviour and spending patterns that are likely to be more or less permanent. Trends that have been accelerated by the pandemic include shift to digital, more health-conscious living, and a focus on local products as a form of return to nationalism.