‘Sink or swim’: Uptick in business bankruptcies just the tip of the iceberg, data suggests

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At least one Ottawa accounting firm says that small businesses that took advantage of government programs through the pandemic are now in survival mode as costs rise and the threat of recession increases.

Iskandar Alex Nasrallah, an accountant at Ottawa’s Lekadir LLP, has worked closely with businesses throughout the pandemic and says that small businesses that “took what they could to stay afloat” through government loans are now in “sink or swim mode.”

While small businesses in some sectors such as home renovation and pharmaceuticals have thrived, Nasrallah explained, the pressure is on for others that are grappling with high inflation and facing increased interest rates for loan repayments. 

Alex Nasrallah
Iskandar Alex Nasrallah is an accountant at Lekadir LLP where he helps businesses to maximize their value.

His views are backed up by a report released today by the Canadian Federation of Independent Business, which shows that commercial bankruptcies are rising in Canada and even more small businesses are at risk of closure. The group said more than one in six Canadian small business owners say they are currently considering going out of business.

Data from the Office of the Superintendent of Bankruptcy Canada shows small business insolvencies have been on an upward trend since May 2021. However, in its report, CFIB says survey data indicates only 10 per cent of Canada's small business owners would file for bankruptcy if their business was no longer solvent.

According to the report, 46 per cent of business owners say they would simply stop operating rather than go through the bankruptcy process.

"Official Canadian data on small business bankruptcies doesn't account for zombie companies or businesses that would rather wind down than file for bankruptcy," CFIB chief economist Simon Gaudreault said.

"Our research provides a broader perspective on business insolvencies in Canada and shows that the rising number of small business bankruptcies is just the tip of the iceberg."

According to Statistics Canada, in 2021, small businesses made up 98.1 per cent of all employer businesses in Canada. In the first quarter of 2022, a quarter of these businesses reported that they did not have the ability to take on more debt. 

CFIB data indicates 54 per cent of business owners are yet to return to normal, pre-pandemic revenue levels and 62 per cent are still carrying pandemic debt.

For those hoping for a fighting chance, Nasrallah said the key is to be proactive in financial planning. There is only so much that can be done, he said, if business owners wait too long to get a financial consultation.

“We sometimes think we’re in la la land when we’re going up,” he explained. “Eventually, it must go down. That’s okay and healthy. We just need to make an analysis around it. Embrace it, see it, and make a plan for it. This is a learning experience for anyone in business.”

CFIB is calling for additional government support to help Canada's small business sector get through the next few months and deal with challenges like pandemic-related debt and supply chain issues. The lobby group’s report included recommendations for how governments should intervene and assist, including freezing planned federal tax hikes and extending repayment deadlines.

“Small firms are in for a rough recovery, but governments can step in and help by taking concrete measures,” said Dan Kelly, president of CFIB, in a news release. “Governments need to decide whether they will make the problem worse by raising taxes or take immediate actions to keep many businesses from disappearing for good.”

With files from Canadian Press

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