How SMBs in Canada are adapting to the pandemic

A recent report from consulting firm Analysys Mason examined how small- and medium-sized businesses (SMBs) have been affected by the pandemic, and how they have adapted to emerging challenges.

Analysys Mason surveyed 1870 SMBs in Australia, the UK, the USA, and Canada between December 2020 and February 2021. In Canada, the firm surveyed 476 firms – including 310 small businesses (0-99 employees) and 166 medium-sized business (100-999 employees).

The first takeaway from the study is that the pandemic hit SMBs harder than large corporates, and within SMBs, small businesses (SBs) were more impacted than medium businesses (MBs). This is because SBs typically have fewer financial resources and are less-equipped to handle challenges such as cash flow and digitization. SBs were also more likely to close operations during the pandemic because they were likelier to be in particularly affected industries such as retail and personal services.

SMBs in Canada reduced their headcount by 24%, according to the report. Medium businesses, however, had deeper headcount cuts than small businesses, with the average MB reducing headcount from 407 to 304 (25%) and the average SB reducing headcount from 24 to 21 employees (15%).

The revenues of SBs were more heavily affected than MBs, though. Fifty-nine percent of SBs saw reduced revenues, 17% had flat revenues, and 24% increased their revenues between 2019 and 2020. Meanwhile, 42% of MBs said revenues decreased, 24% had flat revenues, and 34% had increased revenues.

Impacts varied across industries: SMBs in finance, insurance, and real estate were relatively resilient, with nearly two-thirds reporting flat or increased revenues. SMBs in hospitality were the most negatively affected, with 82% experiencing revenue decreases.

“We are expecting a ‘K-shaped’ recovery in Canada,” the Analysys Mason report stated. “Businesses in verticals such as FIRE, healthcare, IT, and communications will recover at a much faster rate than those that were more affected by Covid-19 such as hospitality and retail/wholesale.”

The report found that all but 7% (10% of SBs and 2% of MBs) of SMBs made changes to their operations in response to the pandemic. Sixty-one percent of respondents said they implemented measures to adapt to Covid-19, including areas such as expanded work-from-home arrangements and changed product or service or delivery (e.g. switch to e-commerce, touchless payment options, video calls).

Meanwhile, nearly half of respondents (45%) said they had to cut costs, with measure including furloughs and layoffs and temporary or permanent closures of physical sites.

Small businesses were less likely to take adaptive measures, likely owing to smaller budgets for additional technology. Forty-five percent of SBs either only cut costs or took no action because of the pandemic, compared to only 28% of MBs.

Industry was an important determinant in pandemic response strategy, with over 40% of SMBs in IT, communications, healthcare, and manufacturing adapting to the crisis without cutting costs compared to just 4% of the hospitality segment. Less financial pressure allowed companies in healthier sectors to adapt with technology initiatives instead of only turning to cost cutting.