Catherine McLean Journalistin/Texterin/√úbersetzerin

Entrepreneurs are ready for a rebound

October 19, 2009
The Globe and Mail

Early last fall, the owners of Rocky Mountain Soap Company made a gutsy move: they decided to proceed with a dream to take a year off to travel with their young children even as a nasty recession loomed.

By January, the economic outlook was downright gloomy, and consumers and businesses were on edge. Karina Birch and her husband Cam Baty were back at their desks in Canmore, Alta., working closely with their day-to-day management team to find a way to protect their business amid sliding sales.

"We were extremely stressed at the time," Ms. Birch recalled recently.

Nine months later, she feels more upbeat about the all-natural soap company she bought with her husband a decade ago. Thanks to a range of cost-control measures, profitability is going up. Perhaps the best proof of the firm's improving fortunes is a plan to open a ninth retail store soon, this time in the Whistler ski resort.

"There's an optimism there that wasn't there last year," Ms. Birch said.

Reserved optimism is the way she describes her outlook, and experts believe it is a sound view for small- and medium-business owners as they look to 2010.

The good news is that the Canadian economy should start growing again during the second half of this year, said Paul Ferley, assistant chief economist at the Royal Bank of Canada.

That rebound will continue next year as he predicts the country's GDP (gross domestic product) will rise 2.6 per cent.

Still, the rebound won't be rapid, which is not a surprise considering the blows that the balance sheets of businesses have received this recession.

"It's going to limit just how much of an improvement we get coming out of this downturn and prevent spending from households and businesses from returning to the kind of rates we were seeing prior to the downturn," Mr. Ferley said.

It may be cold comfort, but Benjamin Tal, senior economist at CIBC World Markets, believes small and medium businesses not only fared better in this recession than previous ones, but also suffered less than the big guys. As proof he points to an increase in the number of small- and medium-sized firms in the year that ended in March, 2009.

Moreover, employment numbers have remained stable at small firms compared with a 10-per-cent drop at larger companies in the first half of this year, according to Mr. Tal's report.

A recent survey of members of the Canadian Federation of Independent Business showed that confidence is at its highest level since the first quarter of 2007. But one-fifth of respondents still described the overall state of business as "bad," and nearly one-half said they're suffering from a lack of demand domestically.

"I think we've got some really good prospects to look forward to in Canada," said Catherine Swift, the CFIB's chairwoman, president and chief executive officer, though she noted times are still challenging for certain sectors such as manufacturing.

The prospect of an upswing is what small businesses have been waiting for as they spent the past year fighting to keep their businesses healthy and viable during the bad times.

Mike Coulter, co-owner of the posh furniture and cabinet manufacturer Harvest House, started to sense the winds of change in 2007 and moved out of a big showcase store in downtown Toronto into a smaller space across the street. The company also decided to expand into cabinetry to create another revenue stream.

Those changes would help his company when the downturn arrived. Business took a big hit when the U.S. banking system collapsed in September, 2008. His customers, who include lawyers, doctors, and Bay Street bankers, weren't losing their jobs. But their net worth had plunged with the stock markets, and they were holding off on purchasing that $10,000 table and chair set. The cabinetry business helped bring some money in.

"The quarter from October to December, 2008, was our worst declining quarter ever," Mr. Coulter says. "People were in shock. No one knew what would happen and they stopped buying stuff."

His aim for the current fiscal year ending in March is to break even as sales drop about 25 per cent. But to achieve that result, he's had to lay off people, bringing his employee count to 20 from as many as 35 in the company's best days earlier this decade.

He's also saved money by chopping his advertising budget, closing the little store in downtown Toronto (they still have their main outlet in Schomberg, Ont.), and learning to be more efficient with heating and lighting. For the year ending in March, 2011, he expects sales will be unchanged or increase slightly from the previous year. He plans to wait until his current employees are working at full capacity before hiring people back.

"I think there's a lot of companies in our position of let's ride this puppy out through 2009 and 2010 in the hopes of when things do turn around more speedily, we're there to benefit from it," Mr. Coulter said.

Across the country at Rocky Mountain Soap Company, the focus is also on keeping costs in check. The stores now order what they need each week and don't carry extra inventory. The firm has negotiated better prices for the ingredients that go into its products. And when someone leaves the 65-employee company, they don't automatically replace them.

So far, sales at the wholesale business are down about 15 per cent, and revenue at the retail stores is up some 6 per cent for the current fiscal year, which ends in January.

"When you're in growth mode you're not so concerned with efficiencies," she says. "Recession has forced us to stop and look at being more efficient."