After three years of pandemic and an impressive succession of crises, SMEs in Quebec do not yet see a real light at the end of the tunnel, since a recession is looming in 2023.
A Desjardins study on SMEs highlights all the headwinds that entrepreneurs still have to face: creativity and resilience will be needed to overcome the seven obstacles that still stand in front of them.
The SMEs identified as the most vulnerable to the onset of the economic slowdown are in accommodation, restaurants, arts and leisure, but also local services such as hair salons and garages, as well as retail businesses .
Less discretionary spending
As these companies have been particularly affected by the confinements and their debt capacity has been pushed to its limit without them having a period of calm, they are fragile.
“They are also particularly sensitive to the reduction in discretionary spending by households, which usually tighten their purse strings during economic slowdowns,” write Desjardins economists Joëlle Noreau and Florence Jean-Jacobs.
We need a crisis unit
Faced with the new threats facing SMEs, the CEO of Canada Sauce, Simon-Pierre Murdock, sounded the alarm on TVA earlier this week and asked the Legault government to immediately create a crisis unit to support entrepreneurs. Even though business is going well for his company, he is still worried about the signals the economy is sending.
“Entrepreneurs need to be supported through the recession, not only financially, but also psychologically,” he asked.
Other sectors, such as manufacturing and wholesale trade, will suffer from the global economic slowdown in 2023, according to Desjardins.
Determination and creativity, Chickumi’s recipe
Losing 90% of its turnover in March 2020, going into survival mode, innovating, taking the risk of bringing a new product to market, struggling to find employees: Lysanne Gingras and Jean-Michel Tinayre have faced it all for 3 years.
Owners of La Mangue Verte event catering service in the nation’s capital, in 2021 they founded Chickumi, ready-to-eat chickpea products, to continue their mission to “do good” as lockdowns threatened the survival of their first business.
Bankruptcy ? Above all, they didn’t want to be forced into it. Their determination and creativity fueled their resilience.
“We are starting from scratch in an area where we had never sold,” says Lysanne Gingras.
Keep faith in your project
La Mangue Verte continues its activities with the only segment of lunch boxes, while Chickumi has entered restaurants and Metro grocery stores.
It took a lot of investment in product research and development and the marketing efforts are substantial for this unparalleled novelty.
Who says investment says debt. Also, you have to have faith in your project to tackle 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 her passion. Despite the labor challenges and the financial stakes, she says to herself every morning that a beautiful day is beginning.
“But I have the impression of having walked the way to Compostela there and back, barefoot and without a bottle of water”, she says, to illustrate the fatigue that inhabits her in this long obstacle course.
1. INFLATION
For five years, until 2021, we juggled inflation at less than 2%, then it jumped. The average for the past year should be 6.5%. It should drop by half in 2023, but before that, SMEs will still have months to live “between the tree and the bark, stuck between the rising cost of their inputs and their customers’ ability to pay”, anticipate Florence Jean-Jacobs and Joëlle Noreau, senior economists at Desjardins.
2. HIGH INTEREST RATES
This is a worrisome area because several companies’ debt increased during the first part of the pandemic and the cost of debt is becoming suffocating. Micro-enterprises (1 to 4 employees) are the most vulnerable: 40% say they cannot take on more debt. The sectors of activity that suffered the most during the confinements are also very weakened. Agriculture, forestry, hunting and fishing: high concern.
3. LABOR SCARCITY
It’s been going on for a few years and even if the number of vacant positions tends to decrease, the challenge remains with an unemployment rate of only 4.3% in Quebec. The high indebtedness of small businesses makes it difficult to invest in automation. Sharing employees in certain sectors, such as tourism, is a solution.
4. WAGE RISE
Because everyone competes for talent in times of employee shortages. And because high inflation leads to pressure to increase the paycheck. The minimum wage will increase by one dollar to $15.25 per hour on 1er May, but already many employers are offering more as they struggle to recruit and retain employees.
5. ENERGY PRICE
This is one of the biggest concerns of entrepreneurs, according to a recent survey by the Canadian Federation of Independent Business. Energy, oil, natural gas: prices rose sharply in the spring of 2020 and after a short lull, the war in Ukraine generated a new surge. Transporting goods is expensive. Eating profit margins or passing the bill on to customers?
6. A RECESSION
In all likelihood, Desjardins economists predict, the current economic slowdown will become a recession. Given the low financial margin of companies, an increase in insolvency cases is to be expected, especially in the first half of 2023. Government aid at the start of the pandemic has kept some companies alive which, under constant pressure, won’t get up.
7. TIRED!
The combined effect of a persistent series of difficulties has led entrepreneurs to continuously adapt to exceptional situations for almost three years. However, to meet the challenges of 2023, a lot of effort will still have to be made. If only there had been a respite to catch your breath…