There will be better days ahead, and smart entrepreneurs will position themselves to take advantage of them, say small business experts

No doubt when David McKay made plans to check out New Brunswick’s energy hub in October, it wasn’t expected to be an auspicious occasion for the Royal Bank of Canada’s group head of Canadian banking to undertake such a visit. In fact, the wheels were coming off the global economy. The U.S. federal government’s rescue package had just been signed into law, and governments around the world were scrambling to add liquidity to the money markets in an attempt to re-inflate the global economy.

What McKay witnessed in Saint John heartened him slightly. “People are still positive,” he said from RBC’s regional headquarters in Halifax. He was impressed with the broad range of energy projects taking place in Saint John, encompassing electricity generation, oil refining, tidal power, and a liquefied natural gas terminal, which he describes as “an exciting project that will pay long-term benefits to the region for years to come.”

McKay’s experience in New Brunswick was indicative of what was happening around the region in October. Despite the roiling economic crisis that was sending tremors through the global economy, small and medium-size enterprises in the Atlantic provinces were carrying on—and they still are. They are cautious. And concerned. But they are bearing up during difficult times.

To weather the storm, business owners and operators will have to take appropriate measures to ensure that they have sufficient cash flow, ready markets, and access to suppliers, say experts on smaller companies. “Most small business owners have been in business for more than 10 years, so they have seen something like this before, and many will be doing what they’ve done in the past to get through the economic storm,” says Leanne Hachey, the vice-president for Atlantic Canada of the Canadian Federation of Independent Business (CFIB).

However, the current situation may be different than past recessions. The main feature of this global slowdown is an acute credit crunch, meaning that some may find lines of credit more difficult to access or more expensive. McKay says entrepreneurs will have to expect that credit will cost more, which may be an unwelcome change that affects the markets for some time. The cost of funds for banks has risen, and they’ll have to pass that expense on to their clients. “The first thing for the small business operator is managing cash and understanding your cash flow needs,” says McKay, adding that owners should sit down with their account managers to ensure they know what’s happening with their cash flow, then figure out how to manage it accordingly.

In spite of the doom and gloom, RBC is still open for business. When the world begins to emerge from the acute phase of the crisis, it is unlikely to restrict overall lending to consumers or small businesses. “The established methodology used in our lending policies has always had a long-term view recognizing the peaks and valleys of the economic cycle,” says McKay. “This allows us to support our clients in good times and through more difficult periods, so I don’t see a fundamental change in how we assess clients’ needs.”

So on what can small business owners focus? A careful assessment of cash flow profile will help them determine what course their companies should take in the medium term. Some who were planning capital projects may find the cost of financing too high and decide to put them off. But be warned: capital investment can be a necessary tool to improve productivity, so every small business should try to find the means to finance these projects in an environment with higher interest rates.

While cash flow issues may be the highest priority right now, they aren’t the only factor requiring attention. Communications cannot be neglected. Employers should keep their people informed about the company’s position and the plan for getting through tough times. Staff members will be worried about the economic outlook and will be more productive after they have been reassured the company is on the right course. One advantage small businesses have is that they can discuss the situation with their staff more quickly and effectively than their competitors with larger numbers.

Small business owners have other advantages in difficult times, says Hachey. If the current environment requires a change in strategy, a small firm can implement the policy almost instantly, whereas a large corporation may take a year or more to change course. What’s more, many small and medium-size operations aren’t the mom-and-pop outfits they were a generation ago, and today are better positioned to weather storms. CFIB members once depended on single customers or single suppliers, so if problems occurred at either end of their supply chain, it
could jeopardize the survival of their businesses. But operators have learned the value of diversifying clients and suppliers so they won’t be negatively affected if one or two of them get into some trouble.

So it’s not all bad news. In fact, the economic crisis will cause some businesses to make changes so they emerge from the chaos even stronger. “There’s always an upside to the downside,” says Hachey, “and businesses are always looking for ways to trim the fat and do things in ways they didn’t before.”

The final piece of advice: Remember that you’re preparing for the next positive turn in the economic cycle. If you’re putting off capital expenditure, inventory purchasing, or hiring, make sure that you’re still planning to do all of those things at some point in the future. There will be better days ahead, and smart entrepreneurs will position themselves to take advantage of them. Says McKay: “My message for customers is to stay with your long-term vision.”