Thinking of Opening a Business In Canada? Here is What You Need to Know:
One of the best ways to improve is to observe others. The African Small To Medium Business landscape is still heavily underdeveloped in comparison to the North American one. We focused on the Canadian SME market to detail their struggles and solutions, some of which are very applicable for Africa.
An Overview of SMEs in Canada: Top Struggles and Solutions
As of December 2015, there were 1.15 million small to medium enterprises (SMEs) registered in Canada. They account for 97.9% of all Canadian firms, and thus it is not surprising that they play a huge role in job creation, employing 90.3% of the workforce. That adds up to 10.5 million people employed by SMEs.
SMEs are the backbone of the Canadian economy. While there is little data on exactly how much of the national GDP is generated by SMEs, 2014 figures collected by BC Stats suggest that small businesses alone (50 employees or less) contributed 30% of Canada’s total GDP.
The success of SMEs is critical to the Canadian economy, and any reasonable person would rightly be tempted to try their luck. However, it is important to note that around 80,000 Canadian SMEs disappear each year. Canada is a great country for SME owners, but don’t be fooled into thinking there are not any major obstacles.
These are some of the biggest hurdles SMEs face in Canada, and solutions to get you through them.
Major hurdles for Canadian SMEs
Access to capital
A great idea means nothing if you don’t have the money to follow through. Unfortunately, many Canadian SMEs rely on venture capital (VC) to get up and running. Canada’s VC industry is not large enough to provide for all the SMEs clamoring for funding. Without capital, entrepreneurs are forced to put their ideas on hold, until they can either fund themselves or find alternative sources.
Many SMEs do much of their trade with foreign businesses, especially in the US. This is a necessary step towards growth, as they find trade partners on a scale that far exceeds what’s possible in Canada. However, international trade requires constant foreign exchange, which can be costly. Banks charge high prices for every transfer and tend to provide exchange rates which are inferior to the mid-market range, and foreign exchange becomes a cumbersome overhead. Furthermore, exchange rate volatility can undermine projections.
Lack of innovation
The innovation rate in Canadian SMEs is simply not high enough. Businesses with old-school manufacturing practices are popular among entrepreneurs, rather than disruptive technologies. This is not helped by an innovation policy that just does not meet businesses’ needs.
The venture capital industry is simply not strong enough to cater to the high number of entrepreneurs with innovative ideas. Last year, the Canadian Chamber advocated initiatives to boost incentives to attract more investors and international funds. While these steps will hopefully build a pool of capital large enough for every SME, it will be wise for those struggling to try alternative sources. Although it’s riskier on a personal level, bank loans are a reliable way to get funding. There are also more modern options, such as peer-to-peer lending, in which you borrow directly from interested lenders around the world. Crowd-funded campaigns are also a great way to get innovative and exciting ideas off the ground.
Foreign exchange companies
Foreign exchange creates an unnecessary expense only if you go through the wrong sources. Most of the time, the banks are the worst providers. They charge high fees and hide fees in their exchange rates, which is why they “can’t” give you the mid-market rate. Foreign exchange companies have popped up in order to counter banks’ inadequacies. Their business model allows them to charge very low fees, while providing exchange rates that reflect the actual Forex markets. Furthermore, they help clients with Forex management, so that they make the right choices and don’t struggle unnecessarily through bureaucratic processes. To learn more about foreign exchange firms that service Canadian companies, see here.
Explore new technologies
If a company does not intend to innovate, but is rather intent on taking advantage of existing industry, it’s difficult to force innovation. However, if you’re looking for opportunities in the market, innovation is more likely to find you the best niche. As an entrepreneur, your role is to run a business, regardless of what you’re selling. If you don’t have the innovation drive, find someone who does to partner with. And, if you’re going to go the well-trodden route, take a look at the new technologies available which will give you an advantage in the sector.
Forecast for Canadian SMEs
Despite the hurdles, the forecast looks good for Canadian SMEs. Canada is committed to getting startups off the ground, and the economy cannot function without them. With a push for more innovation, and an influx of investment from alternative sources, new businesses will continue popping up and sticking around. And by reducing expenses such as those wasted on foreign exchange, which can easily be worked around, companies will have a more competitive advantage.
The Canadian economy requires the continued strength of SMEs. As such, national institutions will do all they can to ensure the growth of startups and help them survive. The future is bright, and with some smart choices, a good enterprise is sure to survive.
A take for Africa
A growth in the SME segment can transpire a huge boost to economy. The World Economic Forum said that SMEs are one of the key growth ingredients to African economy. Although African business don’t have nearly as many options as Canadian ones in terms of funding, credit, and technology, these aspects evolve at such a staggering pace, and creativity and out of the box thinking can turn the African SME market into the biggest success of the 21 century.