Small and medium-sized businesses have big growth plans: KPMG

Despite concerns that the economy might be headed for recession, Canada’s small- and medium-sized business (SMBs) leaders are banking on big growth in the next three years, finds a new KPMG in Canada survey.

Although a recession is on their radar in the near-term, most SMB leaders (83 per cent) say they are optimistic about their company's growth over the next few years. The survey of 503 small- and medium-sized businesses in Canada also found 82 per cent feeling confident about their industry or sector and 78 per cent holding a healthy outlook for Canada’s future economic growth.

KPMG’s recent Global CEO Outlook found a similar sentiment with nearly all Canadian CEOs indicating they are also bullish about their long-term growth prospects.

“Canada’s small- and medium-sized businesses deserve full marks for responding effectively to more than two years of economic volatility and disruption,” says Mary Jo Fedy, National Leader, KPMG Enterprise. “The current economic turbulence is another test of their resilience as most SMB leaders prepare now to set up their businesses to weather the coming storm. Many are drawing on their recent experiences and have ambitious plans to grow rapidly as the economy rebounds.”

Having navigated a global pandemic, more than seven in 10 SMB leaders (73 per cent) are feeling more confident about their growth prospects than a year ago. A majority of SMBs (77 per cent) are planning to increase headcount in the next three years to drive their growth plans, with 20 per cent expecting a hiring increase of at least 11 per cent. To better leverage this talent, nearly three quarters are investing in developing their workforce skills and capabilities.

To mitigate their growth risks in the short-term, most (61 per cent) SMB leaders indicated they have already taken pre-emptive action to recession-proof their business. Survey respondents identified their top three strategies as: boosting productivity (85 per cent); identifying operational inefficiencies and unnecessary complexities (83 per cent); and managing costs by increasing prices (82 per cent).

“The upside is that they believe the recession will be relatively mild and short-lived, with most still expecting to see strong growth over the next three years,” says Dino Infanti, Partner, National Leader, Enterprise Tax, KPMG in Canada. “Most SMB leaders are choosing to strengthen their business from the inside by finding ways to work smarter, be leaner and make their operations more productive and efficient. This emphasis on more internally driven, organic strategies also allows these business leaders to maintain greater control.”

While the pandemic forced SMBs to ‘go digital’ virtually overnight, a majority of SMBs (60 per cent) have or expect to pause their digital transformation plans in the next six months to prepare for a potential economic slowdown. They recognize this approach needs to be temporary, as 69 per cent are concerned they will lose their competitive edge without ongoing investments in digital technologies.

As Ms. Fedy points out, “while pausing capital investments in digital can be a good strategy to wait out economic concerns, this response shouldn’t apply to investing in the digital skills and acumen of your people. A slowdown provides an opportunity to better align talent and technology after the rapid changes made over the last two years. Investing in training and upskilling your workforce on new technological advancements can achieve even greater efficiencies and better business solutions.”

More than seven in 10 SMBs describe their current digital investment strategy as ‘aggressive’. Nonetheless, many SMBs face obstacles on their digital journey that differ from their corporate peers, including more than half who say they can’t afford to digitally transform their business.

• 70 per cent say one of the biggest things holding them back from making progress is managing the risk and compliance aspects of their digital transformation

• 56 per cent lack people with the skills to manage the strategic/operational rollout required

• 70 per cent also say they’re having difficulty deciding on the right technology (e.g. cloud-based ERP or more advanced technologies)

“Our survey indicates that economic concerns such as rising interest rates and inflation, heightened cybersecurity threats and intense competition for the top talent pose the greatest risks for SMBs,” says Mr. Infanti. “The struggle to recruit and retain highly skilled people isn’t new, although corporate CEOs no longer rank talent as a top risk. The stakes are higher for most SMB leaders, who associate digitally skilled talent with their ability to realize business solutions and drive growth.”

• 56 per cent of SMBs agree it is difficult to recruit the talent of the future; an equal number feel they lack the skilled talent needed to transform their business.

• 79 per cent have diversified or plan to diversify their supply chain

• 79 per cent have already introduced or plan to introduce automation in the next six months

“While there may be some near-term economic pain on the horizon, we are advising our clients to be measured in their response,” says Mr. Infanti. “It’s important keep a close eye on cash flow and future-proof your business, but continue with the core strategies and investments that have been most critical to achieving growth. While a prolonged recession would have a more adverse effect on SMBs, an overreaction could extend it even further.”

KPMG in Canada surveyed 503 business owners and executive level C-suite decision-makers at 503 small- and medium-sized Canadian companies between August 16 and September 1, 2022, using Schelsinger Group’s Methodify online research platform. Thirty-two (32) per cent of the companies reported annual gross revenue of over $500 million; 26 per cent between $300-$499 million; 18 per cent between $200-299 million; 16 per cent between $100-$199 million; and 8 per cent below $50 million. The vast majority (85 per cent) of the SMBs surveyed are privately held and the remaining 15 per cent are publicly traded. Fifty-seven per cent of the SMBs are family-owned businesses.