Prioritizing Profitability: Top Tips for Coping with Rising Costs for Canadian SMEs

Prioritizing Profitability: Top Tips for Coping with Rising Costs for Canadian SMEs

Paula Cruickshank, Senior Vice President at Business Development Bank of Canada (BDC) 

The cost of doing business has increased sixfold and Canadian entrepreneurs are feeling the pinch. In a recent studywe found out that the cost per unit has grown approximately six times more between 2020 and 2021 than the average annual cost growth between 2013 and 2019. 

While inflation is slowly returning closer to its target, an aging population, the energy transition and global geopolitical issues will continue to exert pressure on costs. In such challenging economic times, it’s imperative to prioritize profitability. 

Our study looked at what SMEs are doing to cope with rising costs and found that there are three winning strategies you can adopt to mitigate escalating costs and ensure the long-term growth of your business.

Strategy 1: Modernize Your Business Processes Through Automation 

Investing in technology and operational efficiency may seem counter-intuitive during a period of high costs. However, automation technologies have the potential to increase revenues at a faster pace than the incremental increase in associated costs. Moreover, there are simple and inexpensive ways to get started such as the Government of Canada’s Digital Adoption Program (CDAP) that offers grants and 0% interest loans for SMEs to implement new technology. By automating business processes and repetitive tasks such as invoicing, inventory management and purchasing, you can free up your employees for more value-added activities as well as mitigate current labour shortage challenges.

Prioritizing Profitability: Top Tips for Coping with Rising Costs for Canadian SMEs

Marketing automation tools have become increasingly prevalent and are no longer limited to large corporations. Top-performing companies of all sizes are using these tools for lead generation, e-commerce and customer service (to name a few) and many of the smaller businesses we talk to every day are benefitting from accessible and cost-effective solutions tailored to their needs.
We always recommend working with trusted advisors to determine when and where to invest in automation in order to achieve maximum results.

Strategy 2: Reduce Your Carbon Footprint

While some entrepreneurs may perceive a conflict between decarbonization and business longevity, the two objectives are more aligned than you might think. SMEs that map and reduce their carbon footprint throughout their operations not only mitigate rising energy and transportation costs, but are almost eight times more likely to achieve strong growth – fueled in part by buyers increasingly looking to support sustainable businesses.

Procurement which considers environmental, social and governance (ESG) criteria opens up wider market opportunities for SMEs as larger companies increasingly demand environmentally-responsible suppliers. In fact, sustainable procurement is now unavoidable: in a previous study, we found that the proportion of major buyers that will require ESG reporting from their suppliers could reach 92% in 2024! Without ESG reporting, your business could be left out of big contracts. 

Strategy 3: Minimize Your Costs Through Solid Financial Management 

Implementing solid accounting practices is crucial for you to understand your business’s financial standing and enable informed decision making. Accurate bookkeeping practices and modern accounting software are essential prerequisites for real-time operational insights. Once these fundamentals are in place, costing exercises can help identify profitable areas and re-evaluate unprofitable ones, while cash-flow management tools will enable you to stress test assumptions and generate short and long-term forecasts. 

One phenomenon we see a lot of is “revenue leakage,” where business owners give away services that they could be charging for and writing them off as “costs of doing business.” Analyzing the cost of these “free value-add” activities and calculating their returns is important for profitability, especially as in many cases your clients may well be willing to pay for them. Good financial management and reporting can help unearth these opportunities as well as counter other risks such as fraud, embezzlement and cost overruns that can go unnoticed or unchecked for long periods and significantly impact your bottom line. 

Despite a business landscape plagued by escalating costs, Canadian SMEs can adopt new measures, strategies and tools that can enable them to thrive. We are seeing it every day. Embracing automation, reducing your carbon footprint and proactively managing your finances are proven ways for your business to cope with rising costs. As Canada’s bank for entrepreneurs, we stand ready to assist you on this journey and drive your success in the years to come. 

Paula is Senior Vice President, Ontario, overseeing BDC’s financing and consulting services across that province, bringing more than 25 years of experience in the banking industry to the role.

Paula joined BDC in 2009 as Vice President, Securitization, taking over the management of the Canadian Secured Credit Facility, a $12 billion program by the Government of Canada to help restart the asset-backed securities market following the 2007–2009 financial crisis. She also launched BDC’s Funding Platform for Independent Lenders (F-PIL) to provide capital to smaller financing and leasing companies. In 2015, she assumed responsibility for both Syndicated Financing and Indirect Financing (formerly Securitization), rebranding the unit as Wholesale Financing in June 2016. In 2017, Paula was appointed Senior Vice President, British Columbia and North, successfully growing the bank’s financing and consulting services throughout that region. In 2020, Paula transitioned into the role of Senior Vice President, Ontario with the objective of growing the region’s portfolio. She also took on the role of Business Lead for BDC’s Digital Transformation in Ontario from 2021 to 2023, in which she focused on ensuring digital investment decisions and strategies for segmentation, omni-channel and client teams were aligned and continued to serve BDC’s clients.

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