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Despite an advantage over larger firms in this respect, small businesses face a number of challenges that go beyond the currency market and even taxation. (Pavel_R/Getty Images/iStockphoto)
Despite an advantage over larger firms in this respect, small businesses face a number of challenges that go beyond the currency market and even taxation. (Pavel_R/Getty Images/iStockphoto)

Guest column

The six biggest barriers facing small businesses in Canada Add to ...

With the loonie hovering around $0.90 (U.S.), a report by CIBC suggests small businesses in Canada are best-positioned to benefit from U.S. growth and to serve as our nation’s growth engine over the next five years.

“Just as small and medium enterprises are less responsive to a rise in the value of the loonie, they are just as insensitive to Canadian dollar weakness,” says Benjamin Tall, deputy chief economist at CIBC who co-wrote the report.

But despite an advantage over larger firms in this respect, small businesses face a number of challenges that go beyond the currency market and even taxation. Among these concerns are greater susceptibility to internal power struggles, concerns over succession planning, cash-flow issues, trouble handling excessive regulations, and inability to accurately valuate one’s business.

1. Family-run encounter more conflict in the workplace. It’s not necessarily due to a greater degree of friction, but rather, because it’s easier to criticize your boss when he or she is your mother, brother or uncle.

Paul MacDonald, executive director of The Canadian Association of Family Enterprise’s (CAFÉ), argues that, despite personal issues, family-run businesses enjoy an advantage over publicly held firms. Mr. MacDonald’s belief – that family businesses are more competitive in the long term – is supported by a recent study highlighted in a Harvard Business Review (HBR) article titled, “What You Can Learn from Family Business.”

Findings from this study show that ownership structure give family businesses a long-term orientation unmatched by rival public companies. To this end, the report concludes that a tendency toward frugality (in both good times and bad) is a major benefit that plays in their favour.

2. Small businesses grapple with succession planning. Whether family-owned or not, the future of small business is in question with reports that less than a quarter of small business owners have a formal succession plan, while still some experts suggest that the number could be as low as nine per cent. Perhaps even more surprising, a Canadian Federation of Independent Business (CFIB) report from 2012 claims that informal succession plans exist in only 40 per cent of Canadian small businesses.

3. Small business owners aren’t ready to sell. Many owners will inevitably decide that cashing in will offer the best return on their investment. And yet, for some reason, when it comes to privately-owned businesses, the majority are perfectly content not knowing the value of their business. Lou Celli, a partner at Grant Thornton LLP, wants to know why. “The problem,” says Mr. Celli, “is that business owners cannot predict when the day they have to sell their business will come.”

Whether it’s a global competitor knocking on your door asking ‘how much do you want?’ or an unfortunate health issue that forces an owner to make an untimely decision, the future is uncertain. That’s why Mr. Celli insists that business owners need to start preparing now, and be ready to sell at any time, and he explains why.

“If you are preparing to sell a home, the first thing you do is fix up the landscaping and add a coat of fresh paint to the kitchen and bathroom. Likewise, when you are getting ready to sell a business you’ll want to improve the appearance of your track record in order to maximize the value you receive for all you have invested over the years. Ideally you’d like to have at least three years of solid financials, and sell when your neighbourhood is hot, but you also need to tidy up your balance sheet, which could mean moving around certain assets or removing bad debt,” says Mr. Celli.

4. Small businesses lack access to funding for growth. Year after year, owners listed access to funding as one of their most formidable concerns facing the future of their businesses. While it’s not the government’s responsibility to gift businesses with success, or even to create jobs, it is the their responsibility to make sure that innovative, growing businesses have access to capital as well as adequate infrastructure to accelerate their growth.

“Too often small businesses, especially those in key sectors like advanced manufacturing, agriculture, and food processing, overlook many of the lucrative funding opportunities available through provincial and federal levels of government,” says Bernadeen McLeod, president and founder of Mentor Works Ltd., a firm that specializes on helping small to mid-size businesses overcome obstacles to growth through leveraging of government grants and loans.

Hundreds of small business grants and loans programs exist to help businesses expand, subsidize hiring, and allow firms to take part in projects and activities proven to increase global competitiveness. Ms. McLeod works with dozens of not-for-profit organizations and business service firms to offer free educational workshops and webinars for established small to mid-sized businesses across Canada. Businesses should be using funding as a cash flow planning tool. By leveraging government grants and loans for business, they gain access to improved cash, accelerating the execution of strategic plans and thus enhancing their business growth capabilities.

5. Small businesses struggle with regulations. One third of business owners are bothered by government regulations to the point that they insist they would sooner have not gone into business in the first place. This is according to a survey conducted by the CFIB, which provides council to owners dealing with obstacles to running their businesses in Canada, and lobbies to the government on their behalf. Recently, in part due to lobbying by the CFIB on behalf of Canadian businesses, the federal government enacted a "one in, one out rule" that sees one regulation removed for each regulation added. “It’s a good start,” says Laura Jones, executive vice-president of CFIB. In addition to these issues, the organization is also lobbying against the proposed pension increases in Ontario, as well as in the interest of removing barriers to trade across provinces and territories.

6. Small businesses shy away from global expansion. According to a recent report from Statistics Canada, smaller SMEs were found to be nearly twice as dependent upon sales from local markets. In fact, 60.7 per cent of those surveyed claim to rely on local markets in terms of percentage of sales of their highest selling product; whereas, 51.4 per cent of medium-sized enterprises and 31.8 per cent of large enterprises admitted to relying upon local markets. What is more concerning is that, of Canadian manufacturers, three-quarters of the total sales of their highest selling good or service came from within Canada, while only half of Canada’s large manufacturers relied on local markets during the time of the survey. Small and medium-sized businesses cite a number of concerns when rationalizing their favouritism toward the Canadian market, from culture and language barriers to company size limitations and risk aversion. When it comes to international trade knowledge and expertise, businesses can turn to experienced professionals through consulting firms and internal hiring, or they can elect to educate themselves and their team through classes held both online and offline through FITT. And if risk is what is holding your company back, Export Development Canada (EDC) offers solutions that include risk management services, insurance, financing, bonding and guarantees, and more.

Ryan Weaver is a marketing analyst for Mentor Works, an organization that offers a number of free informational events every month covering such topics as government funding, cash flow planning, export support services (through EDC), financing solutions (RBC), and many more.

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