Despite the economic uncertainly that has dominated the past few months, businesses can still equip themselves to make the best choices to bounce back, say experts

“It’s not easy these days to make the best decisions for the future when you’re in business. We see this daily in our business support projects for SMEs in the food processing industry,” says Éric Waterman, Vice-President, Agrifood, at Inno-centre. “When the economy is in turmoil, as it is at the moment, our instincts, even our feelings of anxiety, often guide our decisions. We err on the side of caution. But in in business, what does it mean to be ‘cautious’?” he adds. “If the natural reflex is to cut spending, it’s all the more important in harder times to plan for the future and explore all possibilities,” says Waterman.

From an economic point of view, there’s no doubt that the climate has been more favourable. While Canada’s GDP for the second quarter of 2023 was better than expected, the same cannot be said for the third quarter of 2023, according to the latest data from Statistics Canada.

The hard reality of interest rates

The rise in interest rates to their highest level in twenty years has shaken all sectors of the economy. While there’s every reason to believe that the Bank of Canada is done raising its key interest rate for now, the impact is still being felt by businesses.

Florence Jean-Jacobs, Principal Economist at Desjardins, confirms that economic conditions are a challenge for many. “The rise in interest rates has a restrictive effect on investment and spending.” It’s not surprising, she adds, since sales prospects and debt levels are less attractive than they once were.

Consumer spending declined by 2% in the second quarter (at an annualized rate ), a first since the start of the pandemic. Rising borrowing costs have been felt in the wallet, and people are watching their spending. “At the grocery store, people are making choices based primarily on price,” says the economist.

Looking to a brighter year-end in 2024

The good news is that inflation is dropping in Canada. The trend was confirmed by Statistics Canada when it unveiled its consumer price index for October. It stood at 3.1% compared to 3.8% the previous month. Quebec posted the highest index in the country at 4.2%. But there’s reason for optimism, as the decline will continue in 2024, according to Jean-Jacobs. The annual variation in wages, which has fuelled inflation, is also tending to slow down, which should provide further relief.

While Desjardins predicts a recession for Canada in the first and second quarters of 2024, it should be “short and modest,” according to the economist. The situation is more delicate in Quebec, which has lagged behind all provinces in growth for 2023, but the gap should narrow next year.

Also of note: The institution is now banking on a reduction in the key interest rate as early as the second quarter of 2024, ending the year at 3.5%.

Going against your instincts

Against this economic backdrop, it’s therefore not all that surprising to see business leaders opting for caution and reverting to certain reflexes, especially with the pandemic leaving its mark and accentuating a number of challenges.

What Hélène Deschênes, Senior Business Advisor at Inno-centre, is seeing in the field is that economic uncertainty isn’t creating the kind of turmoil on the scale of the pandemic, which was far worse for businesses. “They’re in a better position to react than during COVID-19. They have more time, and so are able to adapt,” she says.

Even with an obvious slowdown on the horizon, being cautious doesn’t mean stopping everything, warns Deschênes. If the plan is to reduce expenses, it should be done in the right places to hit your target. This is essential to maintain the balance that will enable us to last through the difficult times and have the means to resume operations at full speed when the time comes. “Nothing should be done in a panic or under emotional stress,” she says.

Beware of certain reflexes such as slashing costs by slimming down the workforce. “Reducing the payroll has a more obvious effect than others measures, but it’s not necessarily the best decision, especially in the midst of a labour shortage,” adds Deschênes.

Plan and act for better growth

Does panicking or acting emotionally seem counterproductive? According to Deschênes, there’s another option: strategic planning. “Strategic planning is like our ‘North Star,’ guiding us toward the goal we want to achieve, but without leading us astray,” she says. The process allows us to look at our SME from all angles and identify the actions that will enable us to optimize operations and keep our business afloat.

Louis Fortier, also a Senior Business Advisor at Inno-centre, believes that the path is as important as the destination when drawing up a strategic plan. He sees two main advantages in this process. The first is that it creates an environment conducive to introspection by asking questions about the company’s operations (e.g., do we want to automate, expand or launch new products?). The second advantage is that it sets the stage for a plan of a structural nature. Why does my product exist? What sets it apart from the others? “A lower price is not always the best argument for making a product or keeping it on the market,” says Fortier. Ultimately, the goal of strategic planning is to gain better control.

If a strategic plan has already been performed, it’s a good idea to repeat the exercise if the conclusions reached are more than three years old.

Louis Fortier recommends an annual review. Recent years, and even months, have been marked by a more unstable economic and political climate. The conflict in the Middle Eastand the political dispute with India are the kinds of unpredictable events that have an impact on business operations. “Every year, something happens. You could have the best plan, but you still have to adapt. It could be that consumer habits change or your business segment undergoes transformations,” explains Fortier.

Good planning evolves with the company. Over time, we may realize, for example, that certain objectives need to be set aside, adds Deschênes. “The strategic plan is a compass that helps us keep our bearings.”

Strategic introspection

Desjardins, an Inno-centre business partner, one of whose objectives is to support, assist and finance SMEs in the agrifood sector, stresses the importance of strategic planning. This approach not only encourages companies to take the necessary step back to identify the real challenges at hand and find solutions to meet them, but also has the advantage of providing direction to be ready to act and seize opportunities when the economy recovers.

According to Jean-Jacobs, “the goal is to be the first at the starting line when that happens! Companies will need to act quickly to seize this opportunity to set in motion those projects that hold the most promise for them.”

In addition, she points out that a number of challenges lie ahead for Quebec SMEs. The economist has identified four that she considers most important. Productivity tops the list. “We need to improve labour productivity, such as through automation,” she says. The second issue concerns competitiveness, which requires innovation and a long-term vision.

Ecological transition is the third challenge on her list. With consumers demanding real change and large corporations taking action, SMEs can no longer stand idly by. They have to turn the corner and set criteria for their carbon footprint.

The final point involves securing the supply chain, particularly with sustained volatility in energy costs in 2024. And as the pandemic demonstrated, a contingency plan provides a certain peace of mind in the event of problems.

Act where it counts

There are a number of options available to business leaders. This type of process is beneficial when based on reliable information. “If you don’t understand how you make money, you won’t know how to act. You have to be able to rely on indicators,” says Deschênes. This is especially true if your tendency as an entrepreneur is to operate on instinct, she adds.

After indicators comes evaluation. It enables leaders to better discern which direction to take, whether this involves reviewing the organizational structure, optimizing operations or evaluating the partners with whom they do business.

Since strategic planning reflects our values, the process involves asking essential questions such as “Am I in the right place?” Both advisors brought up the fact that some entrepreneurs become president of their company by default, with responsibilities far removed from what motivated them in the first place. Such an analysis also applies to the rest of the staff. It’s an opportunity to put the right people in the right places, or to simplify tasks.

“Reflecting on your values also helps you identify them so that you can transpose them to the company more effectively,” says Fortier. “You position yourself and establish your brand as an employer, which becomes a way of standing out and attracting the workforce you seek.”

Take advantage of opportunities and a changing market

Planning can be aligned with a growth objective, which means staying on the lookout for opportunities. “If we come back to the notion of caution, this doesn’t mean doing nothing, but acting thoughtfully to be better prepared for what comes next,” says Deschênes.

According to Louis Fortier, the current environment is ripe with opportunities. “SMEs would do well to expand beyond Quebec’s borders by exploring foreign markets, especially with Canadian food products enjoying a very good image abroad,” he says. The market may be slowing down here, but “the economy is in better shape in the United States.” It’s also simpler than it sounds. For example, you can take an existing product and bring it to other markets through a distributor that knows them well, or simply add an e-commerce section to your corporate website.

Throughout this exercise, Jean-Jacobs also recommends taking the pulse of consumers.

Benefit from acquired expertise

The entire strategic planning process generates an added advantage: it calls on an outside point of view with relevant expertise but without the emotional involvement. This enables SMEs to benefit from useful advice in order to sort through all available information.

In any case, recession or not, planning provides a roadmap that would be hard to do without, since it minimizes medium- and long-term risks,” adds Jean-Jacobs.