Small Business

What to Do When You're Worried About the Economy

GDP growth is stagnating, oil prices are plummeting, and the labour force is shrinking. So what?

Written by Murad Hemmadi

Economic news junkies make poor business owners. While broader trends in national and global markets can have trickle-down effects on businesses, local events are far more important to the future of your company.

“For the vast majority of small firms, what happens in their neighbourhood, town or region are really going to determine their success,” noted Ted Mallett, Vice-President and Chief Economist at the Canadian Federation of Independent Business (CFIB).

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The CFIB gauges the thoughts and mood of its SME-owning members using a monthly business barometer, and Mallett admits the stagnation of the Canadian economy and the recent slump in oil prices are serious concerns for many companies. “The average optimism is trending downwards—numbers that we haven’t seen since late 2009,” he said.

But Mallet, speaking at the PROFIT Executive Breakfast: Opportunity Outlook 2015 held in Toronto on March 4, emphasized that economic happenings aren’t as important as local variables. “Quite honestly, the font that you use on your website has a bigger impact on your business than whether GDP growth is going to be 2% or 2.4%,” he said.

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That’s not to say you should be blind to broader trends. Mallett identified reduced fuel prices and a lower dollar as prime opportunities to explore, but warned that firms must act swiftly to take advantage. “If energy prices are going to be lower for the foreseeable future, that’s going to be a benefit to many types of services, but are they ready to make that decision right away?”

But don’t bet your business on the oil slump, however well-laid your plans are. “If you benefit from lower fuel and oil prices, it’s fantastic—it’s an easing of cost structures,” Mallett said. “Trouble is, your competition is probably going to be benefitting at exactly the same rate.”

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Mallett says that the top issues for business owners remain constant regardless of economic cycles: the customer dollar, availability of skilled labour, and access to working capital. The second of those is particularly key, because although the economy appears to be settling, the importance of having the right people in the right jobs hasn’t changed. “Business are less able to invest longer-term in unskilled or newer and greener employees in the hope that they will be skilled in the future,” he noted. “They need those skills sooner rather than later when the economy gets tough.”

And Mallett says that conventional prescriptions to fix the skills gap are little use to small firms. “On the labour shortage side, economists have this view that all you have to is raise the wages and you solve your labour shortage problem,” he said.

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But for business owners, filling a skilled role is “like a game of Jenga.” Raising wages to attract the right applicants has an unsustainable knock-on effect for the company. “If you’re going to pay your brand-new employee a little bit more so you can grab that skill back, that puts your other pay scales out of kilter,” said Mallett.

The number of young people joining the workforce is also shrinking, meaning you’re fishing in a smaller pool. That means you’ll have to focus on an older class of candidates. “The employees that are going to be available will be experienced in other sectors and will have other jobs, so the re-training aspect is going to be important for them,” Mallett suggested.

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Mallett also emphasized the value of looking at the long term. “There’s so much short-term thinking that goes on, out of necessity—you’re dealing with the immediate challenges of running a business like a line of credit, payrolls at the end of the week and so on,” he said. “But try to spend some time thinking longer-term. Where is your business going to be 20 years from now? What are your customers going to look like and what are they going to want to purchase? What kinds of employees are you likely going to have?”

Remember: regardless of where the economy is at, it’s the decisions and plans you make every day that determine the success of your failure of your business.

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