Entrepreneurs: Small is difficult

SMEs try to adapt to new realities.

Normand Campbell, the owner of two French bistros in Edmonton, was so desperate for workers he almost hired a dishwasher and cook out of Sri Lanka. But that was six months ago. Now he has a pile of job applications on his desk.

Staffing is no longer a problem — what Campbell needs now is more customers. His sales are down about 10% from a year ago, while his costs, including the provincial minimum wage and alcohol taxes, have risen. He’s considered offering the special of the day as a three-course meal for $50, but wonders if he can turn a reasonable profit on fish and meat entrées. Ten bucks off a bottle of wine is also on the table. “I’ve never done those before, but I’m going in that direction,” he says from one of his restaurants, Normand’s. “I need to get some action in here.”

Campbell isn’t expecting revenue to improve over the next 12 months. Indeed, the small and medium-sized enterprises in Alberta are among the least optimistic about the year ahead, compared with their counterparts in other provinces, according to a recent poll by the Canadian Federation of Independent Business. In May, the organization’s Business Barometer index for Alberta was 53.2, meaning slightly more respondents were optimistic for the near future than were pessimistic. The impact of plummeting oil prices and weakening consumer spending was a bit of a shock to their members, says Janine Halbesma, the CFIB’s acting Alberta director. But that’s partly explained by the high level of optimism during boom times in recent years. “We went from taking calls about labour shortages to business owners trying to get advice about layoffs,” Halbesma says.

Compared with Alberta, the Business Barometer scores were slightly worse for Quebec (52.2) and a bit better for Ontario (59.9). Particularly dependent on the manufacturing sector and on U.S. trade, Ontario and Quebec have been hit hard by the downturn south of the border. America’s troubled housing market has also dampened the spirits of SMEs in British Columbia, because of the struggling lumber sector. And certain industries across the country — like aerospace and defence, where PricewaterhouseCoopers expects consolidation in 2009 — could see significant changes.

But from an SME perspective, the country does have some bright spots. Newfoundland and Labrador had one of the highest Business Barometer scores of all provinces in May, at 64.4. Under Premier Danny Williams, Newfoundland and Labrador’s taxes have dropped in recent years. The government announced last year that the Hebron offshore oil project will proceed after years of negotiations among the players, including ExxonMobil Canada, which will own 36% of the operation. The province estimates its $110-million, 4.9% stake will create 3,500 jobs and generate $20 billion in royalties over 20 to 25 years, based on an oil price of US$87 per barrel. Construction is slated to begin in 2012, and the facility is expected to be in operation between 2016 and 2018. Newfoundland and Labrador also appears to be making progress on its Lower Churchill electricity generation projects.

While labour remains an issue for the province’s SMEs, many workers have now returned from jobs in Alberta. And the slowdown in consumer spending isn’t noticeable. “There’s a sense here that the province has turned its economy around,” says Bradley George, CFIB’s director of provincial affairs in Newfoundland and Labrador.

But as a whole, the optimism among Canada’s SMEs is well below the historical average. Yet the measure showed a significant improvement in May compared with December. The worse times for business owners could now be behind us, says Ted Mallett, the CFIB’s chief economist. But he cautions there’s tremendous uncertainty over when the recovery will begin and how quickly it will proceed. Mallett points out federal and provincial deficits will need to be paid off in years to come, which will act as a drag on growth. On the bright side, he says small and medium-sized businesses, which account for about 45% of the country’s GDP, will likely lead Canada’s economic rebound. “Small firms are faster than large businesses, and we can capitalize on trends quicker,” he says.

Out in Alberta, Campbell isn’t expecting another boom for a long time. But he says the downturn could cause a welcome change among restaurant patrons. “People will go out for one nice dinner a month rather than five regular dinners,” he says.