Rebuilding Small Business

By Angus Gillespie

If there’s been one prevailing and consistent complaint throughout the majority of this global pandemic it’s that small business has taken it on the chin while larger corporate entities manage to somehow keep their doors open. It’s often been said small business is the lifeblood of the Canadian economy, which is undeniably true, and as such its recovery will be essential for the country’s economic health and employment fulfillment.

IN THE VARIOUS incarnations of lockdowns and procedural changeouts, the one constant has been that small business has been hardest hit each time. They are the companies that can least afford it. What bothers many people is what appears to be a lack of continuity and/ or uniformity in the rules not only across provincial boundaries but oftentimes regarding interprovincial rules and regulations. Yes, it seems as if governments at the provincial and federal levels have been making decisions on the fly by the seat of their collective pants often contradicting their own initial mandates.

The COVID-19 crisis has lead to millions of deaths worldwide. But people have grown weary to the point a sizeable percentage has given up on saving their business entities. Government has pledged to assist those companies that have run out of money and promise to spearhead the economic revival, but it’s going to come at a price.

In the federal budget unveiled by Finance Minister Chrystia Freeland it was announced there would be about $101.4 billion in new spending. A sizeable chunk of funding will be dedicated to healthcare and associated industries – as it should be. Funding Allocation The federal budget reveals that the nation’s deficit is projected to be about $354 billion for the fiscal year that has ended but the anticipation is that the red ink will be reduced to about $155 billion for the current 2021-22 fiscal year. The reason for optimism among the governing Liberals are based on signs of stronger than expected economic gains not only here in Canada but in many other countries around the world.

The allocation of funds from the budget is the equivalent of about 4.2% of the nation’s gross domestic product over the next three years.

Economists say women, low-wage workers, millennials and minorities have been hardest hit by the economic upheaval. New measures will be installed to help address inequities in employment.

With variants COVID-19 now surfacing in various parts of the world – including Canada – Freeland says the government is committed keeping Canadians healthy and safe.

The federal government is also planning to extend the wage and rent subsidies, originally set to have expired in June. The supports will now be made available until the beginning of October. The Canada Recovery Benefit, aimed at people who aren’t covered by employment insurance, will continue to receive funding, although the $500 per week stipend is lowered to $300 per week after July 17.

Of note, $3 billion will be spent over five years to support long-term care facilities. Another $425 billion is earmarked for the eventual reopening of Canada’s borders with $100 million over three years going towards mental health support programs.

For the first time in history, Canada’s cumulative debt could be hovering around the $1 trillion mark.

It will be interesting to observe just how much financial support will actually be available for companies looking to reopen after being forced to close their doors due to being deemed non-essential. That word unto itself creates a great deal of angst and consternation. People can’t buy a new pair of socks and underwear but until recently it had been fine to put out a few dollars to purchase a lottery ticket. Where is the logic in that? After noted complaints, the ability of retailers to sell the previously mentioned lottery tickets was eventually revoked in Ontario during the lockdown period. Sure, it was an oversight but the frustrating part is that there are thousands more cases just like it. It is just one of many examples whereby the clouded differentiation between essential and nonessential hasn’t made any sense whatsoever. It’s been like a giant game of whack-a-mole, chasing down non-essentials that originally escaped designation.

Traditional Enterprise According to figures accumulated by Statistics Canada, at the start of 2020 the nation’s economy had more than 1.23 million registered employer businesses. Of that total nearly 1.2 million were small businesses. That figure accounts for 97.9% of all enterprises in Canada. Industry Canada classifies any company with less than 100 employees as being a small business. Medium-sized businesses are classified as having between 100 to 499 employees and large companies have 500 or more employees. Medium-sized businesses accounted for 1.9% and just 0.2% were large.

How much will that percentage be altered as we move through 2021 and beyond has yet to be determined, although while it’s true small businesses have been hardest hit by temporary and permanent shutdowns, it is also far more likely new emerging smaller businesses will be more nimble and able to sprout up quicker – with the exception of unknown expansions from more sizable entities entering the market from other jurisdictions notwithstanding.

Ontario leads the way in registered small enterprises, accounting for 36% of the national total. Quebec is next at 21%. Most of the rest are divided up relatively evenly between the western and Atlantic provinces. Northwest Territories, Yukon and Nunavut represent only 0.3% of the total due to their sparse populations.

A majority of the employment-leading industries have faced losses in the number of active businesses, with an exception being agriculture. Construction, restaurants, hotels, transportation, and personal services were all very hit by notable declines due to social distancing restrictions and outright shutdowns enforced due to COVID‐19.

The pandemic has been devastating for the many thousands of businesses that have been unable to withstand the financial fallout from all the shutdowns and some are gone for good. If there is any silver lining at all it’s that Canada is deemed to be one of the best countries in the world to start a business according to The World Bank. In fact, the country ranks as third easiest to start a business. However, its ease of doing business once being up and operational ranks only 22nd out of 190. The World Bank measures such key factors as complexity of operations, time, outlay of costs and capital required to keep operations running at capacity.

The Proceedings of the National Academy of Sciences of the United States of America (PNAS) conducted a survey of nearly 6,000 small businesses in the spring of 2020. PNAS noted several emerging themes. Mass layoffs and closures had already occurred—just a few weeks into the crisis in March, 2020. Additionally, the risk of closure was negatively associated with the expected length of the crisis. Finally, many small businesses with more than $10,000 in monthly expenses found themselves in a financially precarious positon with only had enough cash reserves on hand to last about two to three weeks. Admittedly, this is an American organization conducting research on U.S. small business but there are obvious parallels between the two countries in terms of how enterprises are run so it’s not unreasonable to assume a somewhat similar situation has likely unfolded in this country.

Debt Burden

As a result of widespread government measures that have been utilized in order to contain the spread of COVID-19, the Canadian economy contracted 11.6% in April, 2020 when we first saw many companies forced to lay off employees. That was just the initial shock of many more to come.

According to Statistics Canada nearly 25% of businesses with one to four employees and 19% of businesses with five to 19 employees reported revenues were down at least 40% year over year from 2019.

The bleak figures from StatsCan also reveal that small businesses were less likely to have the ability to take on more debt than larger companies. About 50% of the companies with one to four employees and 43% with five to 19 employees reported they didn’t have the ability to take on any more debt at all. Thirty-four per cent of enterprises with 20 to 99 employees said additional debt was not an option. In contrast, 17% of businesses with 100 or more employees reported not being able to take on more red ink.

As of February, 2021 Canada’s small businesses had collectively taken on $135 billion in COVID-related debt as a means of staying afloat through the global pandemic.

The Canadian Federation of Independent Business says the average small business owner has been saddled with $170,000 in debt and if the debt pile grows much higher the fear is that it could lead to a flurry of permanent closures with the red ink just too deep to escape. About 75% of the owners who have taken on debt say it will take more than a year to repay loans with more than 10% worried they may never be able to pay off the debts. Close to 20% are actively considering bankruptcy or just going out of business altogether.

With social distancing still very much at the forefront as we move towards the middle of 2021, companies that have managed to withstand the onslaught of impediments have demonstrated an ability to adapt to the vastly altered workplace environment. Companies looking to reset after a shutdown, and newlyhatched companies, will definitely need to embrace a digital system in many cases. This won’t necessarily be true for all sectors where manual labour is the backbone of operations, but certainly a substantial percentage.

The pandemic crisis has resulted in heartbreaking financial ruin for some small businesses. But from every disaster new opportunity always rises to the surface. Online business opportunities afford people all the benefits of working from a home office. All that is usually required is a computer with high-speed internet and a cell phone, although oftentimes the latter isn’t mandatory. Businesses had to launch – or expand upon – online services to adapt to a remote-only workforce in many industries, especially those deemed nonessential by the government.

Rebuilding the Economy

The construction sector is expected to have a robust rebound and especially in the area of new home building. It’s no secret that in many regions of Canada the demand for homes vastly overwhelms supply, which has led to astronomical increases in the value of real estate due to bidding wars among those wanting to get into the housing market.

In early April the International Monetary Fund said it expects the Canadian economy will grow 5% throughout the course of the calendar year, which is 1.4% higher than its previous forecast. Meanwhile, the Conference Board of Canada is even more optimistic, predicting the country’s economy will expand by 5.8% this year and 4.0% in 2022, thanks to the increased rollout of vaccines, which has led to a gradual reopening of the economy and a boost in confidence. The federal fiscal deficit will improve from the $219 billion recorded in 2020 but will remain a concern.

The Bank of Canada is expected to keep its key overnight trendsetting rate at 0.25% for the rest of the year and quite possibly longer. The Bank’s targeted inflation rate is 2% and the most recent reading came back at 2.2%, which is definitely within the right vicinity.

Canada’s economy expanded by 6.5% in the first quarter of 2021. The gross domestic product expanded by 0.4% in February on the heels of a 0.7% gain in January. Retail sales gained 4.5%. The food and accommodation sector has been extremely hard hit by COVID-19 shutdowns, but it expanded by 3.5%, revealing a plausible reason for optimism. On the downside, manufacturing has been down by about 1% but is expected to show improvement once consumer confidence and spending returns to pre-pandemic levels.

Overall, there have been definitive positive signs of economic recovery and Canadians have shown a great deal of resiliency while facing seemingly endless roadblocks. Once those barriers are cleared there is every reason to believe the economy will rebound and be larger and more robust than it’s ever been before. That day can’t come soon enough.