SMEs still in recession; hopeful about 2011

Canadian small businesses are still digging their way out of the downturn, according to the quarterly American Express Small Business Monitor conducted by Angus Reid Public Opinion.

Even though Canada’s GDP has grown steadily since August 2009, small business owners report little to no change from their position a year ago.

In fact, 47 per cent of saw a “slight” or “significant” downturn to their business, a number that has climbed five points since August and 10 points since May.

That could be why small business owners are also reporting more risk aversion. Only 19 per cent were willing to take “significant” or “above average” risks, down from 23 per cent in May and 25 per cent in January.

“In the spring, the Monitor data were suggesting we had turned the corner on the recession and business was starting to improve,” said Eric Nielsen, vice-president and general manager of Small Business Services Canada with American Express Canada. “But today’s results show that small business owners are bracing for a recovery period that is slower than previously envisioned.”

Owners are keeping tight control on their cash flow. Those planning to spend on new equipment or other capital totaled 53 per cent, compared to 57 per cent in January. Just 19 per cent plan to expand their space, compared with 21 per cent from the previous report, and the number of small businesses planning to upgrade IT dropped one percent to 41 per cent.

Still, companies reported some silver linings.

Four out of five said the benefits of being a small business owner outweigh the risks — the highest level seen since the Amex SBS Monitor began.

They were also optimistic about what lies ahead.

More than two-thirds expect to take on more business next year and 49 per cent said they are hopeful that it will get “a lot” or “a little” better in the future.

Vancouver companies, at 57 per cent, were most optimistic while businesses in Montreal (43 per cent) and Toronto (41 per cent) were below the national average.

Canadian small businesses still worrying about the economy can take comfort in the fact that they are not alone, according to a separate survey, which found widespread anxiety across the globe.

The Forbes Insights survey polled more than 1,750 small and medium-sized enterprises (SMEs) in Canada, China, Italy, Singapore, South Africa, and the UK, with 30% of the sample micro businesses employing fewer than 10 people.

Between 31 per cent and 54 per cent of small and medium enterprises —including companies in countries with high growth that were less affected by the global downturn— said they don’t have the financial reserves to survive another recession.

The study was conducted by Forbes Insights in association with ACCA (the Association of Chartered Certified Accountants), Certified General Accountants Association of Canada (CGA-Canada) and CNDCEC, the professional body for certified accountants in Italy.

SMEs said the recession forced them to become better businesses that now only take risks in areas where they can have control. Growing businesses, especially in more dynamic economies, appear to be facing stiffer competition and rising costs, putting profit margins under pressure.

Respondents said lenders are directing funds to larger SMEs and big corporations instead of micro and small enterprises.

The study also found that credit is being directed away from working capital towards capacity building investments and is increasingly likely to be secured against personal or business assets, while equity investments are drawn to acquisitions and to financing local or international expansion.

As commercial providers of finance have become reluctant to finance working capital, assume customer credit risks or refinance debt, the weight of expectation has shifted to shareholders and trade creditors.

It makes several recommendations for SMEs, such as considering interest rate increases, exchange rate volatility and inflation when developing business plans and risk management policies.

More businesses should explore supply chain finance, whereby large customers provide credit to small suppliers by factoring their own invoices.

Also, businesses should use financial and credit information on their customers and ensure their information is available to prospective trading partners.