Canadian businesses worried second Covid wave will sink them

Nearly one-third (31%) of small- and medium-sized enterprise (SME) owners and leaders believe they won’t have adequate liquidity or access to financing to make it through a second Covid-19 wave, according to a recent survey from KPMG Canada. The consulting firm in September polled 500 Canadian SMEs with revenue between $0.5 million and $100 million.

More than half (54%) of SME leaders noted that their immediate focus was on “survival.”

"We're at a pivotal moment that could make or break many small-to-medium-sized companies," said John Cho, a partner and head of KPMG's deal advisory services. "These companies are the backbone of the Canadian economy, and up to now, we have seen few insolvencies. But worries over a second wave leading to another shut down has one in four seriously looking to exit their businesses.”

An increasing number of urban centers have been bringing back restrictions – such as no indoor dining – as Covid-19 cases have ballooned over the last two months. New daily cases have surpassed 1,000 in Ontario and Quebec, while cases in BC, Alberta, and Manitoba have also been steadily rising.

The ongoing pandemic has many business owners down on their future prospects. Nearly 40% of respondents said they worry they won’t recover from the pandemic downturn, while nearly a quarter (23%) said they regret not selling their business sooner.

The downturn, of course, has also created new opportunities for cash-rich and well-situated competitors. Twenty-nine percent of entrepreneurs said they plan to grow their business by buying a rival company, a supplier, or by diversifying into a new sector.

"While economic uncertainty is causing a lot of angst for entrepreneurs, with more than half just trying to survive, there is also another group of owners who have been well positioned during the pandemic and see an opportunity to grow their business either organically or in buying distressed assets," Cho added.

The survey also highlighted the accelerated importance of technology during the pandemic – which has forced a massive shift to remote work, alongside a rush to online sales channels. More than three quarters (78%) of entrepreneurs said you must “go digital” to survive, while nearly two thirds (64%) said the pandemic has forced them to adopt digital and emerging technology.

The tech acceleration once again provides opportunities for larger, well-capitalized, and digitally mature companies. "It is critical that small- and medium-sized business owners in Canada assess their own desire and commitment to make the technology investments needed to compete going forward,” said Yannick Archambault, partner and national family office leader for KPMG Enterprise Canada. “If you are ahead of the game it might be time to think about leveraging those investments to expand your footprint by acquiring competitors that have been unwilling or unable to do the same."

The pandemic has complicated valuation for companies in many industries, however. The survey found that 46% of owners don’t know what their business is worth anymore because of the unprecedented impacts of the Covid-19 pandemic. Those who plan to sell in the next two years are even murkier on their company’s value, with 54% unclear on the figures.