The pandemic has hit every industry and business hard, none more than small- to medium-sized enterprises (SMEs). How this group manages and positions itself for the future may spell the difference between a serious recession and a depression as the economy reopens.
SMEs matter. According to the Business Development Bank of Canada (BDC), the SME segment represents 99.8% 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% of all Canadian exporters, representing 25% of our total exports, have fewer than 100 employees. At the same time, SMEs are 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, revenue diversification and depth of management and capability.
Most leaders we speak to have adjusted and are beginning to explore how they can reignite their growth engines and improve operational resilience. We have identified a number of these transformational developments, which could include:
The potential for a significant drop in consumer demand due to higher unemployment, potentially higher taxes and reduced disposal income;
A reduction in available capital for investment and working capital for companies with weak balance sheets;
Fundamental shifts in consumer behavior, both in terms of reduced aggregate demand and a shift to online commerce;
The possibility of significant labour shortages in certain regions, sectors and skill sets (even with high overall unemployment) due to pandemic effects, internal migration between localities and restrictions around immigration;
Changing practices towards work, office and travel, and how it impacts business development, infrastructure management, customer service and role definition.
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.
Get an in-depth grasp on your financial situation. You need accurate information to make key decisions;
Revisit customer and channel needs as they may have shifted;
Reconsider your operating model. The ability to quickly and efficiently scale operations will be important when the economy re-inflates. Firms should consider new operational approaches such as outsourcing non-core activities and forming strategic partnerships with other SMEs offering complementary services;
Accelerate digital adoption. Though it may be painful, now is an ideal time to automate manual, routine activities and digitally enable operations and value delivery;
Retool your supply chains to build resilience and reduce operational risk. Prudent leaders should look to diversify your supplier base, including adding local vendors;
Prioritize talent management. The operational agility required in these difficult times puts a premium on having a skilled yet flexible workforce. Companies should revisit their training and succession plans;
Explore untapped markets. Firms facing a recessionary environment should seek out new markets that could be disrupted with existing strategies, products, brands and capabilities;
Be realistic – your firm may be in certain industries like hospitality, entertainment or retail that may not bounce back to what it was pre COVID-19. It may be time to consider a strategic pivot.
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 get first hand advice from a variety of experts, visit MNP’s Business Advice Centre at www.mnp.ca/covid-19.
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