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Many small businesses made it through 2020 with some fancy footwork and a lot of government financial support. Now the next challenge for many is getting through 2021.FG Trade/iStockPhoto / Getty Images

After a year spent weathering pandemic-related lockdowns, pivoting to new virtual business models and trying to manage amid all the uncertainty, small-business owners are working with their financial advisors to navigate the challenges around the most recent restrictions.

While many small-business-owner clients are still seeking guidance on more immediate financial concerns, a sense of cautious optimism and the experience gained in 2020 are also giving advisors the opportunity to re-engage some of these clients in planning for the latter half of this year and in some cases, even further into the future.

According to the Canadian Federation of Independent Business’s November, 2020, COVID-19 Recovery Survey, two-thirds of Canadian small businesses reported that they were fully open while another 30 per cent said they partially open this past autumn, with variations by province and sector. Yet, 56 per cent of these entrepreneurs said at that time they have been “seriously negatively impacted by new/returning restrictions as a result/fear of the second wave.” That figure rises above 80 per cent for the hospitality, arts, and recreation sectors.

“Many businesses, obviously, made it through 2020 with some fancy footwork and a lot of government financial support. And so, now the next challenge is [getting through] 2021,” says Dane Bird, senior vice-president and financial advisor with the Bird Moore Advisory Group at Raymond James Ltd. in Kelowna, B.C. “Cash is obviously needed and we also need a functioning economy in which individual services are saleable again.”

Although small-business owners remain concerned, the actions many took in 2020 to cut their expenses, build up cash reserves, and adapt their business models means they’re more prepared to face the year, says Scott Allman, assistant vice-president, business group, at BlueShore Financial in Vancouver.

“They’ve just been sort of battle-hardened [by the] experience of going through it the first time,” he says. “They’re hoping that they can make it through in time for a turnaround in the coming months.”

While small-business-owner clients’ current mindsets are generally more positive than during the first wave, many continue to plan month-to-month, with some able to look two or three quarters ahead, depending on the type of business they’re in, Mr. Bird says.

“Most people are thinking that 2022 is going to be back to normal to some [degree], but in some cases, such as my restaurateur [clients], they’re down 70 per cent or 80 per cent, so it’s really hard to plan beyond a month at a time,” he says.

Clients whose small businesses have not been operating because of the current restrictions – such as event-planning firms – have recently been asking about the mechanics of modifying their financial plans to see how drawing or supplementing their income from their portfolio might work as a “worst-case scenario” to cover business expenses, Bird says.

“They’re also are interested in knowing ... what would happen if they hit pause on current contributions and savings to the various programs that most business owners contribute toward, and how that would impact or impair their future financial or retirement goals,” he says.

Another area in which small-business-owner clients continue to seek advisors’ guidance, in partnership with tax professionals and lawyers, is in navigating and understanding the continuously evolving government loan and subsidy programs available until various dates in 2021 – particularly the Canada Emergency Business Account, Canada Emergency Wage Subsidy and the new Canada Emergency Rent Subsidy.

Depending on the phase their business is in, clients are also continuing to look more closely and regularly at their numbers to examine the impact of shifting their business model, identifying new areas to help grow revenue and revisiting which costs are necessary, says Jackie Porter, a certified financial planner at Carte Wealth Management Inc. in Mississauga.

“You would be remiss if, at this point in time, you didn’t take a really good look at your cash-flow statement, your business’s net worth [and determine] what assets you have [and if it’s] a good time to potentially sell an asset to invest back into your business, or to look potentially at another venture inside your business that can help you create another income stream,” she says.

In fact, while the emergent nature of the pandemic has led clients and advisors to spend a lot of time focusing on short-term results, Todd Coleman, vice-president, market leader, at BMO Private Wealth in Edmonton says some business owners are starting to seek advice on reassessing their situation in light of new circumstances, with a view to planning a few years in advance.

“[During] the March-April-May time frame [in 2020], there was a lot of fear, and people were just really scaling back to make sure that there was safety there. Now that [safety has] been established for a lot of our clients, they’re looking for some of the longer-term issues that might present opportunities,” Mr. Coleman says.

One example, he says, is a family business that was looking to transfer control to the next generation when the pandemic hit. The client was recently able to take advantage of a lower valuation to implement an estate freeze.

“It will be easier for their kids to purchase the shares over time and it also helps them get a lot more certainty on what their tax liability is going to be eventually,” Mr. Coleman says.

Indeed, while near-term planning is still top of mind for many small businesses, Mr. Allman suggests to his clients that they should think as far out as possible this year in order to prepare for various scenarios.

“In the back of the mind, there’s also a thought that they may need to ramp up things quickly in the last half of the year if consumer demand increases,” he says. “[It’s] a more positive challenge to have, but still nonetheless, it’s a consideration.”