After three years of pandemic and an impressive string of crises, Quebec SMEs are still not seeing any real light at the end of the tunnel as recession looms in 2023.
A Desjardins study of SMEs reveals the headwinds entrepreneurs still face: Creativity and resilience will be required to overcome the seven obstacles they face.
The SMEs identified as most vulnerable to the onset of the economic slowdown are active in the accommodation, catering, arts and leisure sectors, but also local services such as hairdressing salons and workshops, and retail businesses.
Less discretionary spending
As these companies have been particularly hard hit by the restrictions and their debt capacity has been pushed to the limit without a period of rest, they are vulnerable.
“They are also particularly sensitive to the reduction in discretionary spending by households, which typically tighten their wallets during economic downturns,” write Desjardins economists Joëlle Noreau and Florence Jean-Jacobs.
We need a crisis team
Photo provided by Simon-Pierre Murdock
Simon-Pierre, Murdock CEO of Sauce Canada
With the new threats facing SMEs, Canada Sauce CEO Simon-Pierre Murdock sounded the alarm on TVA earlier this week, urging the Legault government to immediately set up a crisis unit to support entrepreneurs. Even if business is going well for his company, he still worries about the signals from the economy.
“Entrepreneurs need to be supported through the recession, not only financially but also psychologically,” he urged.
Other sectors such as manufacturing and wholesale will suffer from the global economic slowdown in 2023, according to Desjardins.
Determination and creativity, Chickumi’s recipe
In March 2020, losing 90% of sales, going into survival mode, innovating, taking the risk of launching a new product, struggling to find employees: Lysanne Gingras and Jean-Michel Tinayre have faced all of this since March 3rd years.
As owners of event catering service La Mangue Verte in the country’s capital, they founded Chickumi, ready-to-eat chickpea products, in 2021 to continue their mission of “doing good” as lockdowns threatened the survival of their first business.
bankruptcy ? Above all, they didn’t want to be forced into it. Her determination and creativity fueled her resilience.
“We’re starting from scratch in an area where we’ve never sold before,” says Lysanne Gingras.
Believe in your project
La Mangue Verte continues its activities with the sole segment of lunch boxes, while Chickumi has entered restaurants and Metro grocery stores.
Significant investment in product research and development has been required and the marketing effort for this unprecedented novelty is significant.
Whoever says investments says debt. Also, you must have confidence in your project to complete this challenge. Lysanne and Jean-Michel never had the reflex to wait for the storm to pass; for three years they have been constantly in action-solution mode.
Lysanne keeps her smile and passion. Despite the work-related challenges and financial challenges, she tells herself every morning that a beautiful day is about to begin.
“But I have the impression that I went back and forth to Compostela, barefoot and without a water bottle,” she says, explaining the tiredness she feels after the long obstacle course.
1. INFLATION
For five years, until 2021, we juggled inflation below 2%, then it skyrocketed. The average for the past year is said to be 6.5%. By 2023, it is set to drop by half, but before that, SMEs will still have months to live “between tree and bark, stuck between the rising costs of their inputs and the ability of their customers to pay,” predicts Florence Jean-Jacobs and Joëlle Noreau, Senior Economists at Desjardins .
2. HIGH INTEREST RATES
This is an area of concern as debt has risen at several companies during the first part of the pandemic and the cost of debt is becoming stifling. Micro businesses (1 to 4 employees) are the most vulnerable: 40% say they cannot take on any more debt. The sectors of the economy that have suffered the most during the lockdown are also very weak. Agriculture and forestry, hunting and fishing: high concern.
3. WORKFORCE
This has been the case for a number of years, and even if the number of vacancies tends to decrease, with an unemployment rate of just 4.3% in Quebec, the challenge remains. High levels of debt among small businesses make investing in automation difficult. Splitting employees in certain industries like tourism is one solution.
4. WAGE INCREASE
Because in times of staff shortages, everyone is competing for talent. And because high inflation creates pressure to raise the paycheck. The minimum wage will increase by a dollar to $15.25 an hour on May 1, but many employers are already offering more as they struggle to hire and retain employees.
5. PRICE OF ENERGY
According to a recent survey by the Canadian Federation of Independent Business, this is one of the top concerns of entrepreneurs. Energy, oil, natural gas: Prices rose sharply in spring 2020 and after a brief lull, the war in Ukraine provided a new boost. Transporting goods is expensive. Eat up profit margins or pass the bill on to customers?
6. A RECESSION
In all likelihood, Desjardins economists predict, the current economic slowdown will turn into a recession. In view of the limited financial leeway companies have, an increase in the number of insolvencies is to be expected, especially in the first half of 2023. Government aid at the start of the pandemic has kept some businesses afloat, refusing to stand up under constant pressure.
7. TIRED!
The combined effect of an ongoing series of difficulties has led entrepreneurs to continuously adapt to exceptional situations for almost three years. However, many efforts still need to be made to meet the challenges of 2023. If only there had been a respite…
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