Nearly nine in 10 small- and medium-sized businesses feel they are in a better position now than a year ago: KPMG poll

Top risks over the next 3 years: What businesses are most concerned about (CNW Group/KPMG LLP)

TORONTO — Most Canadian small- and medium-sized businesses have adjusted their business strategies over the past year in anticipation of a recession and are now feeling more optimistic about their growth ambitions, finds a new KPMG in Canada survey.

Although new challenges have emerged, nearly nine in 10 (88 per cent) businesses are confident their company will grow over the next three years, up from 83 per cent in 2022, and noticeably higher than the confidence levels of CEOs of large corporations (80 per cent).

The KPMG Private Enterprise™ Business Survey of 700 companies reveals that recession worries mobilized leaders to take proactive steps to make their business more resilient. These wide-ranging efforts have included improving operational efficiencies (37 per cent), cutting business costs/expenses (41 per cent), reducing headcount (26 per cent) and temporarily halting large expenditures (30 per cent).

“Canadian business leaders took decisive action over the past 12 months to prepare for a potential recession by making their businesses smarter, leaner and more efficient,” says Mary Jo Fedy, National Leader, KPMG Private Enterprise. “Although many small- and medium-sized businesses are in a stronger financial position as a result of their actions to withstand a recession that hasn’t materialized, they are now staring down new pressures and interrelated risks. By investing the recent gains they have made into solutions to reduce these threats, they will be on an even more solid footing for future success.”

• Key poll findings
  86 per cent of SMB leaders say their company is in a better position today because of the steps they took in anticipation of a recession
• 82 per cent believe the actions they took to prepare for a possible recession will reap productivity gains, but it could take some time due to inflation (e.g. higher input, labour and financing costs)
• 83 per cent say cost and investment pressures on their operations (e.g. decarbonization, technology, cybersecurity, etc.) are more concerning than a recession

Despite the high level of confidence, SMBs are seeing a complex web of emerging risks. Cybersecurity, disruptive technologies, energy security and climate change are weighing on leaders as they pursue their growth plans.

Heightened cyber risks
Cybersecurity ranks as the number one risk, with 63 per cent reporting their business has been the target of a cyberattack. “When compared with large corporations, small- and ‘mid-sized enterprises are feeling more vulnerable to rising cyber threats and the growing sophistication of cyber criminals. More than ever, they need to prioritize investments in cybersecurity to close this gap and build internal capacity to guard against these incidents,” adds Fedy.

Emerging technology: AI and the talent factor

The vast majority of leaders recognize that digital transformation reduces or controls costs, enhances operational efficiencies and improves the client experience. However, many are still searching for individuals with the skills needed to fuel growth, leverage continuing technology investments and adapt their workforce to the new economy.

Even with the influx of skilled immigrants to Canada, a vast majority (84 per cent) are not finding the talent to match their needs. Nonetheless, the latest job numbers continue a positive trend, with employment growth averaging 30,000 new jobs a month since the beginning of the year, according to Statistics Canada.

“Most companies are now actively recruiting to find people with the right skills to operationalize their technology investments, particularly as emerging technologies disrupt the market,” says Dino Infanti, KPMG Partner and National Leader, Private Enterprise Tax. “With AI now the focus of the digital conversation, leaders are grappling with how best to accelerate its adoption and upskill their workforce to expand and grow. By harnessing transformative technologies like AI, Canadian companies can improve productivity and stay competitive with their U.S. and global peers.”

Energy security and climate realities
Climate change is impacting Canadian SMBs dramatically this year. The effects of extreme weather events (e.g. wildfires, floods, tornados) and higher energy prices are hurting businesses and adding to cost pressures. Over half (54 per cent) say their costs rose significantly due to extreme weather impacts.
“With Canada’s clean energy transition ramping up and climate realities arriving on the doorstep of businesses across the country, climate resiliency and decarbonization have taken on added urgency. To subsidize these efforts, nearly seven in 10 leaders say they expect to use federal green tax credits, which will likely shape future energy and investment decisions,” says Mr. Infanti.