Rising costs have had widespread impacts on Canadian businesses and aren’t going away any time soon.
These are two findings in BDC’s new study, “How to Cope with Inflation and Remain Profitable.”
Two in three Canadian businesses say costs have gone up more than they expected in the past year, the study found. And the same number says rising costs have impacted them negatively.
The study also found it’s very unlikely we’ll return to pre-pandemic low inflation conditions for a long time and that upward pressure on some business costs is expected to persist.
That’s due to:
- Our ageing population, which will keep putting pressure on labour costs
- The energy transition, which is likely to drive up costs for carbon-based fuels and certain materials
- Faltering globalization and supply chain changes that companies are implementing to reduce the risk of pandemic-style disruptions
Three inflation-fighting strategies
Most businesses have already taken steps on inflation. About one in two have reviewed their internal processes or offerings in an effort to cope. One in four have modernized processes. Over one in five have laid off staff. But 27 per cent don’t have a strategy at all.
BDC’s study found that workforce reductions and inaction can be “detrimental.” Companies making layoffs were 11 per cent more likely than others not to be profitable, while those not taking any action were 7 per cent less likely to show high growth. Ignoring rising costs or hoping to wait it out isn’t the answer.
In that case, what can businesses do to address rising costs? Plenty!
Our study found three great strategies that businesses are successfully using:
Modernize your processes with technology
Investing in technology doesn’t necessarily mean splurging on costly machines. You can use simple machines and inexpensive software to automate repetitive, routine or time-consuming tasks.
Consider applying to the Canada Digital Adoption Program, created by the Government of Canada, to receive a grant for up to $15,000 to create a digital plan and an interest-free loan of up to $100,000 to implement it.
Reduce your carbon footprint
Curtailing your carbon footprint or greenhouse gas emissions can contribute to profitability through:
- lower energy costs
- enhanced productivity thanks to energy-efficient equipment
- improved customer and employee satisfaction
- access to supply chains that seek environmentally friendly partners
- reduced exposure to green transition-related cost increases
Implement proactive cost management
Your company has a treasure trove of data that you can use to improve your bottom line. Some possible steps:
- Implement a robust monitoring and accounting system.
- Track your financial health with performance indicators.
- Analyze your data and use it to improve operations, such as by reducing wasted time, effort and resources.
These strategies can make a big difference in your results. Companies that put in place at least one of these strategies were more likely to report above-average growth and profitability.
As we found in our study, businesses can take steps to protect their profits and help ensure they keep thriving. If you’re not sure how to proceed, consider bringing in an outside expert, such as those at BDC’s Advisory Services.
Also keep the communication lines open with your banker. In my experience, entrepreneurs who have a good relationship with their lenders are often the most optimistic about the future of their business and the best positioned to act on opportunities.
At BDC, we have your back and pride ourselves in sharing the journey with entrepreneurs who are at the heart of our Canadian economy.
Talal Mahfouz is BDC’s Business Centre Manager for Small Business in Eastern & Northern Ontario