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SMEs are optimistic… and preparing for a recession



Although they foresee a recession, Canadian SMEs are aiming for strong growth in the next three years, according to a new survey.

8 out of 10 SMEs are sure to grow

According to the survey conducted between August 16 and 1er September 2022 among 503 small and medium-sized Canadian businesses by the consulting firm KPMG, 83% of SME leaders expect to experience strong growth over the next three years.

This voluntarist optimism does not prevent a salutary realism. While 66% of SME managers expect a recession to occur within a year, half of them expect it to be mild and short-lived. According to the analysis of Mary Jo Fedy, national leader of KPMG Enterprise, this happy attitude is the fruit of two and a half years of resilience and adaptation through the pandemic crisis.

4 big risks

However, SME managers show a healthy awareness of the risks that weigh on their growth, foremost among which are economic factors – interest rates and inflation. This is followed in order by risks relating to cybersecurity, which have notably increased with remote working, the shortage of talent and emerging or disruptive technologies.

Preventive measures

Already, six out of ten SMEs have taken steps to mitigate these risks to their near-term growth and weather the blows of a recession. Among these strategies, 85% of respondents place the increase in productivity. In similar proportion, they want to identify operational inefficiencies and unnecessary complexities.

Paradoxically, one of these initiatives risks exacerbating the inflation that worries them so much: 82% of SME managers intend to manage costs by raising prices.

Reduce… and increase the workforce

SME managers are ready to step back in order to bounce back better. Four out of ten SMEs plan to reduce their workforce in the next six months. Already, 30% of executives say they have frozen hiring to prepare for a potential recession.

But 77% plan to increase the number of their employees within three years. In fact, one in five companies intends to increase their workforce by more than 10%. Yet another paradox is that two-thirds of SMEs struggle to hire people with the skills needed to grow the business.

One answer: automation. Nearly eight out of ten companies have already initiated plans to do so or intend to do so within the next six months.

Slow down the transformation

Without necessarily slowing down, SME managers want to slow down for the digital transformation – in some cases the revolution – that the pandemic has forced many of them to undertake. To prepare for a potential economic downturn, six in ten SMEs have already paused their transformation plans or expect to do so temporarily within the next six months.

But the important word is “temporarily”. Indeed, 69% of SMEs fear losing ground to their competitors if they relax their investments in digital technologies. This shows wise caution, according to Mary Jo Fedy, who believes that while temporarily halting investment can sometimes help weather the storm, “it shouldn’t apply to investing in digital skills and employee skills.

ESG struggling

Either way, environmental, social and governance (ESG) factors are likely to pay the price. No less than 54% of SMEs “struggle to present a convincing narrative about ESG issues”, indicates KPMG. Nearly a third have no strategy on this issue.

Unsurprisingly, the consulting firm sees a need for advice and support.

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