Many changing direction to cope with the surging real estate market
TORONTO, September 27, 2016 – Small business owners in Ontario are headed into 2017 with a less optimistic outlook compared to last year, according to new data released by Meridian, Ontario’s largest credit union. Meridian’s 2016 Small Business Banking in Ontario survey found that 67 per cent of small businesses expect growth this year, down 11 per cent from 2015.
“I’m not surprised about these results, because when the economy becomes unpredictable, small businesses feel it first,” says Geordan Robertson, Director of Small Business for Meridian. “We’ve noticed that many small businesses are approaching us with cash flow concerns, especially those who were not conservative when they were running a surplus. These entrepreneurs are looking for solutions that they can’t find with their current financial institutions.”
The study revealed that 52 per cent flagged cash flow as their top concern with economic uncertainty coming in second at 51 per cent. Changes in fluctuating currency made 38 per cent uneasy, and Provincial legislation changes concerned 37 per cent, but only 23 per cent are worried about finding good employees.
The surging real estate market also draws red flags with some small businesses. But while more than half, (57 per cent) agree that the current market is unsustainable, only 12 per cent say that the real estate market is negatively impacting their business expansion plans. Findings include:
- 24 per cent indicate they will hold off on making a real estate purchase because of the uncertainty.
- 35 per cent of respondents feel a less expensive option would be to lease rather than purchase a business property.
- 17 per cent said the current market has provided positive opportunities for their business expansion plans.
- 20 per cent of small businesses agree that the current real estate market generated positive effects for their business.
- 20 per cent have been prompted to adopt a virtual work environment.
“The real estate market is definitely influencing the way small businesses operate,” says Robertson. “We’re seeing some of our Members either race to purchase real estate, or liquidate some or all of their real estate holdings and turn to leasing instead. And as the results indicate, many are adopting virtual environments to cut down on capital costs.”
Robertson urges small businesses to be conservative and look for creative solutions during the period of economic uncertainty. “It’s about making it work for you,” he says. He also has a few tips for small businesses that can help them stay optimistic:
Stay conservative if you’re running a surplus - If you find yourself in a surplus position (maybe you just closed a big contract, or sale – or perhaps due to a seasonal element of your business), don’t start spending more. Keep your costs down, remain conservative and put the extra funds aside.
Capitalize on surplus funds - Ensure that you are earning interest on those surplus funds. The principal protection and liquidity of the rate of interest will depend on your risk tolerance for fluctuations.
Separate personal and business credit cards/lines of credit – Business lines of credit should be separated from personal, otherwise you can run up personal expenses all too quickly and easily, compromising your business cash flow. A good accountant can help you organize your books.
Understand the days’ receivables and payables – It seems like a small process, but you can manage your cash flow better when you work around the payable and receivable days. It may take 60 days to get paid from a client, but you may also have 60 days to pay your supplier. If you work around these timelines, you can establish a rhythm where you’re making your money go further in between paying and receiving payments.
Keep up with the news - Changes in currency, government legislation, taxes and the stock market can impact your business. If you’re informed, you could make quick decisions that can save or make money.
More than two-thirds of the small business owners surveyed, 68 per cent, used personal savings for their start-up financing, while 22 per cent secured financing from a bank or credit union. Only 1 per cent of small businesses secured financing through online lenders or crowdfunding.
Start-up challenges faced by small business owners according to Meridian’s 2016 Small Business Banking in Ontario study include:
- Acquiring clients - 49 per cent
- Understanding small biz taxes & legal requirements - 29 per cent
- Marketing - 27 per cent
- Accessing capital & finding staff - 21 per cent
About the Survey:
The 2016 Small Business Banking in Ontario survey was conducted by Leger with 310 small business owners in Ontario from July 22, and August 2, 2016 using Leger’s online panel Legerweb. A mixed methodology of phone and online surveys was used. A probability sample of the same size would yield a margin of error of +/- 5.7 per cent, 19 times out of 20.
With over 70 years of banking history, Meridian is Ontario’s largest credit union, helping to grow the lives of its more than a quarter of a million Members, including over 23,000 business Members and 17,000 small business members. Meridian has $14 billion in assets under management and delivers a full range of financial services online, by phone, by mobile and through a network of 84 branches and commercial banking services in 11 locations. Meridian Members also have access to THE EXCHANGE® Network, with more than 3,300 no-fee ABMs across Canada and 500,000 ABMs in the United States. For more information, please visit: meridiancu.ca.
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