This text is part of the special Business Challenges booklet
SME managers are currently navigating in a hectic and foggy environment, which greatly complicates their decision-making. Those who still want to pick up the pace and continue to grow face many dilemmas. Rising interest rates and inflation, repetitive hiccups in supply chains, workplaces adapting to post-pandemic demands, and lack of human resources are indeed giving headaches to entrepreneurs dreaming of growth. .
Widespread uncertainty is the biggest risk factor for SMEs, says Ms.e Étienne Brassard, partner and business lawyer at Lavery. Companies love predictability. But currently, the war in Ukraine, inflation, rising interest rates, labor shortages and supply problems create a new and difficult to read context. »
Indeed, the world has changed a lot in two and a half years. This poses a host of new challenges for SME managers. Inflation puts upward pressure on production costs. In July 2022, the consumer price index (CPI) had increased by 7.6% compared to the last year. Average inflation had not crossed the 3% mark in Canada for 30 years before starting to soar in 2021. As for wages, according to the Canadian average, they increased by 5.2% over one year.
“We are living through an inflationary period and full employment, but at the same time we fear a recession, underlines Mr.e Armband. There really aren’t many similar precedents for entrepreneurs to base their decisions on. »
Strategic turns
The labor shortage alone is a major challenge. Many companies complain of having to refuse orders or delay their execution because they lack human resources. It really is a brake on growth. Supply chains are another concern. The pandemic and the war in Ukraine, in particular, challenged the highly offshored supply chains that had become the norm. Before, entrepreneurs mainly looked at procurement-related expenses. From now on, they have to analyze their resilience, because an inexpensive product that doesn’t arrive isn’t very useful.
Labor shortages and supply problems can lead SMEs to consider new strategies. “Some of them carry out mergers and acquisitions or forge partnerships in a desire for vertical integration, to bring the supply chain closer to the company or to make it more efficient, explains the lawyer. Some companies also decide to acquire others simply to get their hands on their employees and relieve their labor difficulties. »
Find the right partners
The availability and cost of capital could also become an issue. In the United States, venture capital granted to companies has been steadily declining since the end of 2021, for example, falling by 23% in the second quarter of 2022 compared to the previous three months. Back in May, tech startup finance firm Y Combinator (which helped launch Airbnb, Dropbox, DoorDash, and Coinbase, among others) urged even startups in its portfolio to “plan for the worst” and reduce their expenses, including laying off employees. Several of them have followed this advice by putting their payroll through the mill.
“In Quebec, venture capital often comes from more patient lenders, who make a long-term commitment, such as Investissement Québec or BDC Capital,” emphasizes Étienne Brassard. That might protect businesses a bit. In 2021, two-thirds of the total value of venture capital transactions carried out by the twelve most active firms in Quebec came from Investissement Québec, Desjardins Capital, the Fonds de solidarité de la FTQ and BDC Capital, according to data from the Réseau Capital association. However, the rise in interest rates could all the same increase the debt burden of certain SMEs and slow down their development.
According to Me Armsard, the current context could push entrepreneurs to look for lenders who are ready to be patient and who have the resources to support their development, rather than simply looking for the lowest interest rates or quick access to capital. “They must choose good partners, who are willing to face the current difficulties at their side,” he advises. We are spoiled, in Quebec, since we count on a lot of funders who use this approach.
This special content was produced by the Special Publications team of the To have to, pertaining to marketing. The drafting of To have to did not take part.