SMEs need to keep eye on economy
Monday, March 19, 2001
In Ottawa, Washington and the newspapers, you can sense the jitters.
The high-tech sector has been a madhouse, the stock market a pogo stick and our protracted prosperity apparently based on overvaluation and wishful thinking. Are we going on bread rations soon?
Not in the view of the entrepreneurs showing up at the Toronto Business Development Centre.
"They seem to be quite positive and they don't seem to be anticipating a downturn," says Cheryll Corness, manager of client services at the business incubator.
"I personally am very conservative in the way I approach things," she continues. "But in the long run for these people, you have to say, 'Go with your intuition. Use your best feeling.' At the end of the day, each entrepreneur has to make their own decision."
Nervous government and industry officials aren't only imagining things -- there is a tightening of the economy evidenced in everything from dot-com shakeouts to the increasing challenge of securing commercial loans. Yet entrepreneurs are self-believers who don't always function on a strictly rational basis, and that is often their strength, says Professor Myer Brody of the University of Toronto.
"I think most small entrepreneurs pay little attention to the economy as a whole," says Prof. Brody, a specialist in entrepreneurship. "My experience is that when business is good, they attribute it to their own efforts, and when it's bad, they take the blame. The perception is that, for better or worse, it's my doing."
In any event, the current uncertainty hasn't lent itself to ready formulas on how to do business. Moreover, the economy is a rather different animal in the various regions of Canada.
Perhaps the word from high-flying Alberta summarizes it best. When you ask Donald LaBelle of Western Economic Diversification Canada in Edmonton, a supporter of small and medium-sized enterprises (SMEs), if his clients are feeling squeezed, he responds, "Not yet -- but we're keeping a close eye on it to see where it goes."
To get a reading on other parts of the country, along with some advice on how to operate during this transitional period, we buttonholed KPMG LLP to connect us with some of their front-line people involved with SMEs.
From Halifax, regional managing partner Douglas Reid was unabashedly bullish.
"There's tremendous activity in our market," he says. "At least from the perspective in Atlantic Canada, the media has really built this thing up [fears of economic downturn]. There is a slowdown, but it's my perception that we won't see the slowdown to the same extent as Southern Ontario."
Major offshore oil and gas projects around Newfoundland and Nova Scotia mean that adjunct SMEs that serve the resources sector "are essentially well-positioned and they're very excited about what's happening," says Reid, who praises the complementary role played by the universities in his region.
Although credit has tightened across much of Canada, in the Atlantic region "with some of the growth that we've seen, credit has been more readily available," Reid says. "Lenders may have been more willing to give credit to customers they may not have [been willing to lend to] before."
Andy advice for small businesses in less buoyant circumstances?
"It's very important for them to manage their expectations, to look at their cost structures, to keep their lenders advised," Reid counsels. "There is a need for the SME owner to really work closely with the lender. I think they have to be understood as partners."
In Toronto, Dave Cook, KPMG's national director of assurance-based advisory services, sees capital markets slowing and agrees that Ontario has certain vulnerabilities.
"In the last couple of years, the automotive and technology sectors have done very well in Ontario, and I think those are going to be hit," he says. "It's not to say there's not going to be opportunities, not going to be successes. In my view, success is very much a game of inches."
Cook advises small business to reduce discretionary expenditures, be careful in managing cash flow, keep an eye on accounts receivable for customers having problems and avoid overcapacity in the inventory area.
The toughest news came from Vancouver, where John Vegt, a KPMG partner for owner-managed and emerging businesses, offered his views.
"Right now, confidence in British Columbia is still quite low in the business community, and capital spending is down," says Vegt, who also notes a slowdown in the kind of monied immigration that previously boosted the province's fortunes. He believes that "we've had a really unfriendly [provincial] government for business for about a decade."
Vegt says aging boomers mean a lot of businesses are looking for successors, a task that is often mishandled with bad results.
Yet Vegt also sees emerging bright spots with the current government, "whose agenda is very much more business friendly" and who is helping to unleash any pent-up consumer demand.
To get on track, "small businesses really need to be a lot more creative and reinvent themselves with new products and services," Vegt says. "Business as usual will not cut it any more.
"And businesses need to reinvest internally more, be a little less leveraged, rely on the banks less. Successful businesses don't take as much out."