The pandemic has hit every industry and business hard, none more than small- to medium-sized enterprises (SMEs), a major driver of Canada’s economic growth, trade and innovation. How this group positions itself for the future may spell the difference between a serious recession and a depression as the economy reopens.
As a critical contributor to employment, economic activity and family wealth, SMEs are typically owner-operated, regionally based and concentrated in several labour-intensive sectors. They are especially vulnerable to economic downturns and unexpected disruptions and often lack the resources to bounce back quickly. SMEs don’t have the advantages of larger companies in terms of market power, access to capital, multi-jurisdiction revenue diversification, and management and capability depth.
COVID-19 hit this sector particularly hard, with many SMEs facing corporate insolvency or significant revenue declines. While government support has helped, most recognize financial relief is not indefinite and possibly insufficient to maintain pre-COVID operations and growth prospects. Other looming business risks include public health warnings of a second wave, a potential U.S.-China trade war, and possible supply chain and channel partner disruptions further complicate their outlook.
Most leaders 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. Transformational developments could include:
- Potential for a significant drop in consumer demand due to higher unemployment, potentially higher taxes and reduced disposable income;
- Reduction in available capital for investment and working capital for companies with weak balance sheets;
- Fundamental shifts in consumer behaviour – reduced aggregate demand and a shift to online commerce;
- Possible significant labour shortages in certain regions, sectors and skillsets (despite high unemployment) due to pandemic effects, internal migration between localities and immigration restrictions; and,
- Changing work, office and travel practices, and how it impacts business development, infrastructure management, customer service and role definition.
We recommend taking the following steps today to set your business up for a more sustainable future.
- Get an in-depth grasp of your financial situation, both from a cash flow and balance sheet perspective. You need up-to-date and accurate information to make critical decisions;
- Revisit any shift in customer and channel needs – customers may be trading down within categories, deferring or even abandoning purchases;
- Reconsider your operating model. The ability to quickly and efficiently scale operations will be necessary when the economy re-inflates – consider new operational approaches;
- 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. The use of advanced data analytics can improve decision making, optimize spending and enable tighter customer relationships;
- Retool your supply chains to build resilience and reduce operational risk – 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 emphasize generalist skill sets and IT competencies in their recruiting and revisit their training and succession plans;
- Explore untapped markets. Seek out new markets that could be disrupted with existing strategies, products, brands and capabilities;
- Be realistic – your enterprise may be in a particular industry that may not bounce back to what it was pre-COVID. 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. Visit www.mnp.ca.
MNP is a leading national accounting, tax and business consulting firm in Canada. We proudly serve and respond to the needs of our clients in the public, private and not-for-profit sectors. Through partner-led engagements, we provide a collaborative, cost-effective approach to doing business and personalized strategies to help organizations succeed across the country and around the world.
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