The quarterly American Express Small Business Index has climbed to its highest level in more than a year as 35 per cent of respondents reported business is improving. The index suggests Canadian small business owners believe that business conditions are turning, as the number of small business owners who are hopeful has stabilized.
The index, which is a key part of the quarterly American Express Small Business Monitor and measures and assigns a grade to the confidence, performance and attitudes of small business owners from coast to coast, climbed to 66 per cent, or a letter grade of C, in May, compared with 61 per cent or C- in March 2009 when American Express and Angus Reid Public Opinion began tracking attitudes of Canadian small business owners during the depths of the recession.
One contributing factor to this five-point boost is the decline in the number of small business owners reporting a downturn in their business in the second quarter of 2010. As of May, 37 per cent report that their business is experiencing a downturn, a marked drop from 50 per cent this past January, and 52 per cent in March 2009. Also encouraging is that those reporting a “significant” downturn in business have dropped to just 14 per cent, compared with the 20-21 per cent consistently reported by the monitor over the past year.
Another factor is a decrease in the amount of stress that the economy is causing small business owners: 52 per cent of small business owners said they were extremely or a little stressed, down from 56 per cent in January and a high of 66 per cent in March 2009.
“Since the depths of the recession, small business owners have been telling us that things are slowly improving,” said Eric Nielsen, Vice President & General Manager, Small Business Services Canada, American Express Canada. “In March, we reported that Canada’s small business engine was gearing up for a solid year but a downturn was still evident. Now there is a significant group of respondents who are expecting not just a subtle improvement, but a truly great year.”
In the survey, conducted by Angus Reid Public Opinion, 58 per cent predicted revenue growth in the coming 12 months. Of those respondents, 44 per cent expect that growth to be 20 per cent or more. The average expected increase is 24 per cent. The picture becomes a little more nuanced when considered regionally. Vancouver small business owners who foresee growth projected an average increase of 40 per cent, while Montreal and Toronto respondents both were even with the national rate of growth.
Toronto, Vancouver and Montreal Illustrate Regional Differences to Recovery
For the first time, American Express has taken a closer look at the data specific to Toronto, Montreal and Vancouver and identified intriguing differences between the three cities. In Vancouver, 64 per cent of survey respondents said they were hopeful that their business’s financial position would improve, compared with 61 per cent in Montreal and just 40 per cent in Toronto. The national average was 50 per cent.
Some suggest the difference in optimism may be as much about general attitude as economic differences. The level of trust in business is higher in Vancouver, said another respondent. “Business can be done on a handshake here, and I just don’t see that happening in Toronto.”
SBOs See Opportunities and Threats in the Coming 12 Months
Despite their growth expectations, small business owners face significant challenges in the coming months. The recession played havoc with small businesses’ cash flow, and 42 per cent of respondents point to this as a weakness facing their business in the next 12 months, followed by wage and benefit costs (34%).
Yet small business owners have found their own strategies to deal with these challenges. One proprietor, who owns two small businesses in Toronto, said “I used freelancers to get through the downturn because they are more flexible. Flexibility is key to weathering the storm.”
The biggest threat to small businesses in the coming year, according to owners, is an increase in competition, cited by 58 per cent. One respondent, an online aroma therapy products seller from Montreal, sees his biggest threat as mall kiosks. His response? Provide exceptional service.
“If we can’t provide our customers with the care they expect and demand, we’re not doing our job properly. Competition is always around the corner, and our business plan is about superior customer service.”
Having a business plan appears to be crucial to help small business owners feel confident about how the next 12 months will unfold. While just 20 per cent of respondents said they have a formal business strategy, 60 per cent of that group strongly agree that they feel prepared to successfully navigate the next 12 months, compared with just a third of those who report they have “some ideas”, and a little more than a quarter of those who report having no strategy.
“The importance of having a formal business plan is brought into clear focus here,” said Nielsen. “It provides a roadmap into the coming year, even if it needs to be revised as you go along. But it’s also valuable as a confidence builder, to help you feel you can deal with whatever the coming year throws at you.”