Too many small businesses end the year without meaningful recovery or much optimism: CFIB

Small businesses are wrapping up the year with a mixed outlook, according to the latest Canadian Federation of Independent Business (CFIB) Business Barometer.

Despite ongoing challenges, the state of business this December is virtually back to where it was three years ago: 38 per cent of entrepreneurs now say their business is in good shape and 17 per cent describe their situation as bad (those shares were 38 per cent and 16 per cent respectively in December 2019), said the report which was released on Thursday.

Simon Gaudreault

“Although it is encouraging to see some things going back to normal, such as how entrepreneurs perceive the overall state of their business, we have to recall that recovery, especially on the financial side, remains elusive for too many,” said Simon Gaudreault, Chief Economist and Vice-President of Research at CFIB. “Our Small Business Recovery Dashboard shows 52 per cent still have below normal sales and 58 per cent carry outstanding pandemic debt, for an average of more than $114,000.

“The readings this month remain very low by historical standards. Businesses have been through the wringer, so it’s not surprising they’re entering the new year with caution and anxiety. However, on the macro level, there may be some cause for optimism as we see some of the inflationary pressures continue their downward trend or at least somewhat settle in the last few months.

“The post-holiday months are typically where businesses see a dip in activity so some of what we’re seeing is seasonal and expected. However, the fundamental situation for small businesses is far from rosy as they’re under a huge cost pressure, feeling the pinch of inflation and the burden of pandemic debt. Very high costs of doing business and a slowing economy are likely to challenge many businesses’ budgets and survival in the upcoming months.”

The CFIB report found:

• Capacity utilization has been hovering around almost 80 per cent—a good level—in 2022, and supply chain indicators have shown continuous improvement throughout the year;
• Shortages of skilled or semi-/unskilled labour eased up recently, but they remain a big headache, currently affecting 49 per cent and 36 per cent of businesses, respectively;
• Various costs continue to cause difficulties for historically high shares of small businesses, including fuel and energy (73 per cent of businesses this December), insurance (64 per cent), wages (61 per cent), product inputs (49 per cent), borrowing (37 per cent) and capital equipment and technology (27 per cent);
• The 12-month index, the main small business confidence indicator of the Business Barometer, registered 50.9 index points this month, a modest 0.9 increase over last month. This is a level that remains quite low and is usually only visited around recession periods;
• Firms in retail, agriculture and construction were the least optimistic with levels below 50. The short-term outlook dropped more than three points to 40.2.

The CFIB is Canada’s largest association of small and medium-sized businesses with 95,000 members across every industry and region.

“Small businesses were not in high spirits heading into the new year. Near-term confidence continued to plummet, falling deeper into contractionary territory, with more firms expecting their business performance to deteriorate than improve over the next three months. The longer-term outlook, despite the small gain in December, remained at a historically low level. Only during the early days of the pandemic and the Global Financial Crisis were businesses more pessimistic,” said Ksenia Bushmeneva, Economist, TD Economics.

“It’s not surprising that small businesses are feeling downbeat. While challenges related to supply chain issues and some cost pressures appear to be gradually receding, other headwinds – such as rising borrowing costs – are intensifying. The latter may be especially worrisome for indebted small businesses. The report noted that 58 per cent of small businesses still carry outstanding pandemic debt with the average balance of more than $114k. Based on our updated economic outlook, growth and consumer spending are both expected to slow in 2023, further straining businesses’  bottom lines.”

(Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald, covering sports, crime, politics, health, faith, city and breaking news, and business. He works as well as a freelance writer for several national publications and as a consultant in communications and media relations/training. Mario was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)