Why digital transformation is key to saving Canada's small businesses

Fintech industry figure highlights importance of 'greasing the wheels of the small-business economy'

Why digital transformation is key to saving Canada's small businesses

The coronavirus crisis has pushed many Canadian small businesses dangerously close to the financial brink, and it will take innovation and radical changes to pull them back to safety.

That’s the view of Will Buckley, the country manager for Canada at Xero, the global cloud accounting software for small businesses. Established in New Zealand as the world’s first cloud-based accounting platform in 2006, Xero has since successfully expanded into Australia and the UK, and established a North American presence through Canada two years ago.

“We work with accountants, bookkeepers, and financial institutions to create a really rich ecosystem of technology solutions to help small businesses,” Buckley told Wealth Professional. “Our main goal is to help small businesses thrive, but also really importantly, lift the rate of survival of SMEs [small and medium enterprises].”

The struggles of small business
Buckley said small businesses form the backbone of the Canadian economy, and the COVID-19 crisis has only highlighted how vulnerable they are. Based on pre-pandemic trends, he said 50% of small businesses don’t survive past their fifth birthday, suggesting that many businesses have been treading consistently and dangerously close to the red line in terms of cash flow management.

Statistics from national surveys indicate that the COVID-19 pandemic has aggravated the situation.  Since the start of the pandemic, the Canadian Federation of Independent Business (CFIB) has conducted a weekly poll asking its members how the coronavirus has impacted their business; the latest results from June 15 showed 49% were fully or partly closed due to the outbreak, 46% were making no more than half of their normal sales, 35% were operating with at most half of their workforce, and 30% have had to reduce their employees’ hours.

“We’ve seen some government initiatives and programs to offer relief to business owners,” Buckley said. “To the government’s credit, these were created and rolled out on short notice, and despite some growing pains, they’ve been really helpful.”

Limitations to lifelines
Giving credit where it’s due, he said lifelines such as the Canada Emergency Wage Subsidy (CEWS), Canada Emergency Commercial Rent Assistance (CECRA) program, and Canada Emergency Business Account (CEBA) have helped businesses stay in control and on top of their cash-flow management through this challenging time. Delayed tax deadlines have also provided a measure of relief, allowing entrepreneurs to focus their mental energy on more urgent and important matters concerning their business.

But those solutions can only go so far. Much of the assistance to business owners has come in the form of loans rather than outright bailouts, and the resulting pile-up of non-forgivable debt, penalties, and interest charges could lead to a rise in insolvencies as early as fall. Some have also reported that because of the delayed roll-out of CEWS compared to the Canada Emergency Response Benefit (CERB), they’re having trouble getting employees to come back to work as they reopen their doors.

On the macroeconomic side, efforts to help keep businesses and ordinary Canadians afloat has caused the federal budget deficit to explode past $340 billion, with government debt forecast to nearly double from $765 billion in March 2020 to $1.236 trillion by March next year.

“I don’t think this is something Canada can borrow its way out of,” Buckley said. “I think it’s going to take investment and innovation for the country to get back to safe standing.”

Improving the business ecosystem
One key part of the solution, according to Buckley, is for government agencies to have a strong digital innovation agenda. That includes the Canada Revenue Agency (CRA), which many business owners and taxpayers have reported challenges interacting with as they try to stay compliant with their tax obligations.

“Business owners shouldn’t be spending hours and hours every month, or quarter, or year reconciling their books, filling out sales-tax returns, and staying on top of their filings,” he said. “This should be a frictionless, seamless process, and I think the CRA will appreciate the opportunity they now have because of COVID to really invest in digitizing their workflows and the experience they provide Canadian taxpayers.”

Another important piece, from Buckley’s view, is to improve business owners’ ability to access capital using technology. He highlighted an ongoing push to enable open banking in the country that’s being considered at the senate committee level at the moment. Along that same line of thought, Ontario launched a consultation on how to improve its capital markets and support a dynamic and competitive economy through its Capital Markets Modernization Taskforce.

Some fintech firms have also been fighting on the front lines. FrontFundr, an online private-market investment platform, has recently been allowed to extend its efforts to connect investors and entrepreneurs across Canada. Silver Maple Ventures, the company behind FrontFundr, also partnered with stock-exchange operator NEO to form DealSquare, the first centralized platform in Canada that connects private capital raisers with dealers and their investment advisor networks.

“I think there are really good signs that Canada is looking to take control to speed up the flow of transactions and money through the capital markets,” Buckley said. “We definitely want to grease the wheels of the small-business economy; the last thing we want is to throw sand in the gears.”


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