Looking Ahead to 2015 – Key Challenges for Small and Medium Enterprises

• February 2^nd, 2015
• Member Profiles

As we are about to turn the page on another calendar year, most entrepreneurs will want to reflect back on 2014 economic trends and look forward to how they will impact their businesses into 2015. A few key stories have dominated the economic headlines over the past year. They include the following:

• Slower demand in the global economy – this has been caused by the slowdown in demand from China and also the continued economic struggles within the European Union. A combination of low growth and high unemployment in the Eurozone is sparking fears of deflation for the first time in decades. This has led to a softening demand for Canadian commodities and drop in those prices. Consumers are seeing this with the first significant decrease in gasoline prices in this decade;
• Growth in demand in the United States – as the US continues its climb back from the great 2008 recession, this rebound will have a tremendous impact on both the national and regional economic climate. This increased demand combined with a lower value for the Canadian dollar should be a winning formula for businesses in Waterloo Region that export goods south of the border;
• The continued low interest rate environment – while there has been looming talk of interest rates rising, it has yet to happen. Most experts agree that when rates begin their inevitable rise upward, it will be done on a graduated basis over a longer period of time. It is this belief which should support the Canadian housing market in future months. Given this mixed economic environment, how should small and medium-sized enterprises prepare for the 2015 year and beyond? There are several key ways that SMEs can prepare their organizations when facing an uncertain future.
• Ensure they can attract and retain their key talent – it is critical that small businesses develop and keep their human capital. This is especially important when considering the impact of technology in small businesses. In Waterloo Region, the technology firms being born out of several incubation programs rely heavily on the talent of their founders to keep the business operating and to attract much needed financial capital. It is important that small businesses recognize that retention of human resources involves more than compensation. Effective performance management, recognition, and work-life balance programs are also required in order to maintain a highly functional talent pool.
• Understanding their cash flows – most entrepreneurs will say that “cash is king!” An SME can make all of the profit it wants but if it cannot generate positive cash flows then it will be a wasted effort. It is critical that SME’s track their cash flow as closely as they track their income and expenses. This includes developing an annual cash flow budget and monitoring that budget on a monthly basis. Most successful owner-managers will monitor their cash balances on a daily (and sometimes hourly) basis.
• Develop a network of business advisors – any successful owner of a SME will tell you that it is impossible to be an expert in all facets of their business. In addition to surrounding themselves with talented employees, it is important to have a dedicated team of professional advisors that truly understand their business and industry. This team will usually include their legal counsel, accountant, financial advisor, and other mentors. Some companies have developed advisory boards which meet with the owners on a periodic basis to help guide the business in achieving its strategic vision.

As the economy continues to generate mixed signals into 2015, it is imperative that SMEs develop the tools and foresight to survive and succeed in an uncertain future.