Preparing for the possible

While all signs are pointing toward the risk of recession in most countries, small- and medium-sized businesses (SMBs) continue to be optimistic about the future and their ability to weather a recessionary storm.

The lessons of the past two disruptive years have not been forgotten. SMBs are putting their houses in order and getting ready for new growth opportunities that will open up when the economy rebounds.

There are two recent reports that support this outlook. The insights from a global survey of 1,325 CEOs, captured in the KPMG 2022 CEO Outlook “Growth strategies in turbulent times” shows, for example, that CEOs globally have learned to navigate the unpredictable, are confident in their companies’ resilience and are relatively optimistic about their growth prospects over the next three years.

The second indicator is a recent poll of SMBs in Canada where optimism is running high, and 83 percent of the respondents are feeling optimistic about their growth over the next few years. Most are expecting a recession, and they know that pain is coming, but they’re already taking steps to weather the storm by tightening their belts, implementing hiring freezes and pausing any new technology investments.

While they’re optimistic about their company’s growth prospects over the next three years, they also recognize the need for getting the right balance between the current reality and their future prospects.

Short-term strategies are priority number one: boosting productivity, looking at operational efficiencies, managing costs, eliminating complexity and keeping an eye on cash flow. The future outlook will be focused on high-quality, high-margin products, paying down high-interest debt and keeping a sharp eye on emerging opportunities. Most are planning to increase their headcount in the next three years to drive their growth, though many agree that finding and recruiting skilled employees will likely be more of a challenge in coming years.

With a glass-half-full view of the future, the majority of SMBs expect the recession to be relatively mild and short-lived. They are choosing to strengthen their business from the inside in the short term by finding ways to work smarter, be leaner and make their operations more productive and efficient.

The pandemic forced many to ‘go digital’ virtually overnight, but most companies in the survey expect to pause their digital transformation plans over the next few months – purely as a temporary decision due to concerns about losing their competitive edge.

As my colleague Mary Jo Fedy, National Leader, KPMG Enterprise in Canada has suggested, “Pausing capital investments in digital can be a good strategy to wait out economic concerns, but 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. And investing in training and upskilling your workforce on new technological advancements can achieve even greater efficiencies and better business solutions in the long term.”

The world is about to face another test of resiliency, but the struggle is nothing new. Taking cues from the pandemic, many SMBs are taking cues from the experiences during the pandemic, upskilling their teams and preparing for the possible by laying the groundwork for longer-term growth.

There is no better time than now for companies to begin preparing for future, and here are few suggestions for getting started:

• Keep doing what works: Continue putting time, effort, and talent towards optimizing the changes and investments you've already been making, but don't lose sight of strategies that generate growth.
• Learn from the past: Leverage the lessons learned about resilience. The pandemic imparted its share of insights when it comes to managing supply chain disruptions, realigning cost structures, and reducing expenses. Now is the opportunity to draw on them.
• Prioritize future proofing: Staying competitive will require a workforce that is trained and adept in embracing the changes, challenges, and digital transformations. It will also require time and resources to develop a compelling ESG story, and being ready with the processes, talent, and technologies to evolve with your customers.
• Upskill your talent: Organic growth rests on people. Use this moment to build your team and/or upskill the people in your roster to extract full benefit from your business investments and strategies. Prepare your team to take advantage of new and emerging technologies, and protect against a growing cyber threat landscape. At the end of the day, your people are your first line of defense.

You can hear more on this topic in our recent interview ‘Taking Stock – Small businesses are the lifeblood of the economy’, which was broadcast on BNN Bloomberg, CTV News and CP24 in Canada.

As tax professionals, we believe that KPMG Private Enterprise Tax has a role to play in highlighting the extraordinary social and economic role of privately owned businesses. In our view, governments should not focus on imposing higher tax rates on these engines of growth, but on incentives that encourage innovation, R&D, green energy and other essential priorities that can help to bring people back to work and boost productivity.

You can, learn more about the four government policy building blocks that we have proposed in our recent article “Carving a new path: How private companies can contribute to future economic stability”.

I would be very interested in hearing about the outlook for your business as well, and the steps you are taking to prepare for the future. Feel free to contact me at dinfanti@kpmg.ca.