As Canada finds itself immersed in the third Canadian wave of the COVID-19 pandemic, a multitude of businesses have been locked down again. There’s one pressing question on the minds of business owners everywhere: will Wave Three be Strike Three for small business?
It will depend, says the experts.
“For some businesses, COVID has provided an opportunity for unprecedented growth,” explains Richard Kluska, CEO of IP Private Wealth—a wealth management firm specializing in Canadian entrepreneurs. “Economists have coined the term ‘K-shaped recovery’ for this pandemic economy, meaning that while certain sectors are surviving, some are thriving, and others are facing casualties.”
This ‘K-shaped recovery’ is apparent all around us: dealerships can’t keep enough trailers and RV’s in stock, housing prices have skyrocketed, and good luck booking a contractor or landscaper. Meanwhile, restaurants, hotels, and beauty services are shuttered with no way to pivot their offerings.
The public health response to the risk of infection has left many small businesses, especially retailers, feeling targeted by lockdown policies; all levels of government have determined that large box stores are evidently better equipped to provide safe social distancing, leaving local shops in the lurch. “In addition, there’s frustration about government programs,” notes Kluska. “While the support is appreciated by the business community, these programs have been criticized for insufficient and uneven provision of financial relief due to the means by which they’ve been calculated.” All these factors have added significant frustration and financial pain to many small businesses across the country.
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Tough choices ahead; how does a business owner know they’ve struck out?
Kluska has advice based on what he’s seeing in the marketplace. “For those businesses that were able to embrace new merchandising and sales solutions such as curbside ordering, online shopping, or modified service delivery, the answer is to hang on. With the economy slated to re-open after full implementation of the vaccine, many Canadian households are flush with cash and ready to return to normal shopping and purchasing.”
What about those businesses that were unable to manage a socially-distanced pivot? “The reality is that owners have had to increase corporate and/or personal debt to stay afloat,” says Kluska. “In these cases, careful consideration of all options is warranted.” Kluska says answers to the following questions need to be seriously addressed by each business owner:
- How much debt has the business owner accumulated over the past year, and what is the expectation of paying this debt off in a reasonable period of time?
- When the economy recovers, will your debt be a burden to compete against new business competitors that will have no legacy debt, and may even be able to obtain better terms on rents and leases?
- Does your business require a significant injection of capital to compete with new business models in your business segment?
- Will the amount of debt undertaken be a detriment to your financial wellbeing and retirement?
- What is your existing cash flow “runway”? We are currently shutdown for 28 days; if we end up with a longer lockdown due to stalled vaccine rollout or increasing cases, can you survive 60 or even 90 days?
When reviewing the plight of many small business owners today, there’s a reality some owners will have to face: the cost of staying in business may outweigh the cost of shutting down. “This is a heart-rending decision to make,” explains Kluska. “Most of us business owners have an emotional connection to our business, and our very identity is tied into our entrepreneurship.
“Our political leaders need to understand the unique and terrible loss that closing a business can be—not to mention, the cost to our economy in the form of job loss and an influx of unemployed entrepreneurs who may be lacking skill sets needed to re-enter the traditional workforce.”
Kluska urges business owners to look at their situation carefully during this third wave. “I know that ‘failure’ is not in the business owner’s vocabulary, and it is exactly this passion that makes business owners successful. However, it is also a crucial time to talk to your advisors and make informed decision based on your own circumstances.” Business owners are people with homes and assets just like anyone else, and they should be protecting their personal financial future. “The key is to ensure they are not driving themselves into a worse situation through their determination to keep the doors open,” he explains.
What’s left to be done for small business in Canada?
Kluska points out that our leaders have been flexible and adaptive to the ever-changing health protocols, and urges the governments to take a similar flexible approach to supporting Canadian business. Kluska states, “If Canadians want small businesses to survive, we need to enact change at the political level. Just as public health officials have had to re-examine public health protocols throughout this crisis, it is imperative that all levels of government also re-examine the tax and administrative policies impacting small business owners. The small and medium businesses of our nation have historically been key drivers of the Canadian economy; their success is our success.”
