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The pandemic has hit every industry and business hard, none more than small- to medium-sized enterprises (SMEs). This is of serious concern not only because jobs and shareholder wealth are at risk but also because this cohort is a major driver of Canada’s economic growth, trade and innovation. How this group manages the COVID-19 storm and positions itself for the future may spell the difference between a serious recession and a depression as the economy reopens over the next three months.
SMEs matter. They are a critical contributor of employment, economic activity and family wealth. While definitions vary, a Canadian SME is roughly defined as a company between $1 million and $250 million in revenue, and having 1-499 employees. According to the Business Development Bank of Canada (BDC), the SME segment represents 99.8 percent of all Canadian businesses and is responsible for 54.2% of all economic output. SMEs share much in common and have unique needs relative to large companies and sole proprietors. They are typically owner operated, regionally based and concentrated in several labour-intensive sectors including manufacturing, construction, business services, wholesale trade, retail and hospitality.
At the same time, the SME segment is not unsophisticated or passive. The BDC reports that 90 percent of all Canadian exporters, representing 25 percent of our total exports, have fewer than 100 employees. At the same time, SMEs are especially vulnerable to economic downturns and unexpected disruptions and often lack the resources to bounce back quickly. Specifically, SMEs don’t have the same advantages as larger companies in terms of market power, access to capital, multi-jurisdiction revenue diversification and depth of management and capability.
COVID-19 has hit this sector particularly hard, with many SMEs facing corporate insolvency or experiencing significant revenue declines. While government support has helped, most SMEs would recognize financial relief is not indefinite; in many cases it is insufficient to maintain pre-COVID operations and growth prospects.
To further complicate their outlook, they see other looming business risks. Public health officials warn of a second wave of COVID-19 occurring within the next six months. A U.S.-China trade war is not out of the cards, which could raise SME input costs and reduce market access. Finally, SMEs may see their own supply chain and channel partners go bankrupt or pivot to new markets as they themselves try to cope with the effects of the pandemic and recession.
Most leaders we speak to have adjusted and are beginning to explore how they can reignite their growth engines and improve operational resilience. The challenge is to understand what has changed and its impact on their future operating environment. We have identified a number of these transformational developments, which could include:
What can SMEs do today to stabilize their business and position themselves for future growth? We recommend taking the following steps today to set your business up for a more sustainable future.
Building a recovery plan doesn’t have to be a challenge you face alone. MNP is ready to support businesses as they explore opportunities and examine their path ahead.
To learn more, contact Trent Bester, Senior Vice President, Consulting at 306.664.8312 or [email protected]
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