High Inflation and High Rates: What Businesses should Keep an Eye on

September 13, 2022

By Atul Oka, Senior Director of Strategy and Business Development, DUKE Heights BIA

As interest rates increase in an effort to battle high inflation, Canadian businesses face greater uncertainty. Interest rates can have an impact on a business’s cash flow, ability to borrow, growth strategy, and hiring plans. With the latest increase of seventy-five basis points (0.75%) by the Bank of Canada in September 2022, Canada now has the highest policy interest rate among all G7 countries. The current overnight rate of 3.25% is the highest since 2008, and with an inflation reading of 7.6% in July, the Bank of Canada is expected to keep raising rates until there is a sustained decrease in inflation.

Conversely, these increases while significant, have only been possible because of confidence in the economy’s recovery as evidenced by strong job growth and an unemployment rate at the all-time low of 4.9% (July 2022 reading). In a strategy similar to the one employed by the US Federal Reserve, the Bank of Canada has “front-loaded” the interest rate increases in an effort to reduce overall spending and thus the demand for goods and services.

Because rate changes have a lagging impact, there is now an increased risk of recession should the Bank of Canada continue to raise interest rates at the current pace. The CMHC is currently predicting a recession at the end of 2022. Whether there is a recession or just a slowdown, businesses in Canada will need to understand how the rate environment will impact their business.

The most important impact for many businesses that have taken on a high level of debt during the preceding period of low rates to boost capital investment and growth is their ability to service debt. In addition to higher input costs as a result of inflation and a possible slowdown in demand, businesses now face an increase in the cost of servicing existing debt and a decreased ability to access increased debt. Companies that have low margins and high debt will be hit especially hard by the potential “cash flow crunch”. Managing and forecasting cash flow will thus be critical for many businesses if they are to effectively mitigate this risk.

Wage inflation and the ability to hire new workers in the short term may also impact businesses during the initial interest rate cycle. Over the last two years, many workers left the labour force leaving businesses struggling to fill open positions. This in turn resulted in wage inflation as businesses attempted to retain and grow their headcount. Businesses may therefore continue to face human resource challenges until the labour market cools down which is only expected in late 2022 or 2023 when demand destruction leads to increased layoffs.

Another challenge that not even large international companies like Walmart and Target have been able to successfully manage is forecasting demand and thus inventory. Some businesses may hedge against inflation by accumulating inventory and locking in prices before they increase, or over-order, if supply chains remain unstable, but carrying a large inventory, can tie up precious funds if the inventory cannot be moved at the rate expected. Businesses should be cautious about excess inventory, especially in light of the manufactured slowdown in consumer and corporate demand as a result of higher interest rates.

It is thus important for businesses to incorporate these challenges and risks when creating, evaluating, or adjusting their business plan or strategy.

The DUKE Heights BIA offers free financial planning assistance for members. You can access this service HERE.

Marketing during a Slowdown

June 08, 2022

By Atul Oka, Senior Director of Strategy and Business Development, DUKE Heights BIA

With higher inflation and increasing interest rates, many economists are forecasting a downturn in the economy. Of particular concern for businesses is the potential slowdown in consumer spending which will impact sales and total revenue.
In tough times it is often logical for businesses to rationalise costs to ensure profitability. Indiscriminate cost-cutting however can have unintended or negative consequences for the business. The traditional approach often involves cutting the marketing budget because it is seen as nonessential to the business.
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The Harvard Business Review suggests that this may actually be harmful to the business and suggests an approach which identifies the consumers and products which will continue to be in demand and focus business marketing on this targeted space. This approach has historically been shown to not only support sales during a downturn but also an increase in market share for the business coming out of the slowdown.

To understand how to do this, we first need to understand consumer behaviour during tough economic times. Consumers can be segmented into four large groups.

Slam on the brakes – This group feels more vulnerable and immediately reduces all types of spending by eliminating costs, delaying certain purchases, or substituting items for cheaper alternatives.

Pained but patient – This group remains optimistic about the long term but is less certain about the short term, and therefore also reduces spending though not as thoroughly as the previous group. This is usually the largest consumer group and will quickly change their behaviour based on both positive and negative news.

Comfortably well-off – This group is not as concerned about short term bumps and is confident in their ability to continue spending at their usual level to maintain their standard of living.

Live for today – This segment of consumers usually remains unconcerned about savings and thus does not change their consumer behaviour unless they are directly affected by unemployment.

As a product and marketing strategy, it may be useful for businesses to evaluate their products against these market segments and identify who their main consumers currently are, then take appropriate action to ensure continued sales.

We can elaborate on this concept with two examples. The first being a corner grocery store, and the second is a beauty supplies store.

The corner grocery store, which usually caters mainly for the slam on the brakes and pained but patient consumer segments, will find that consumer behavior has changed away from “treats” or “nice to haves” to “essentials”. In this case, the store could be agile enough to reposition itself to stock more “essential” items at lower margins but secure a greater volume of consumers by better aligning its inventory and marketing to benefit from changing consumer behaviour.

The beauty supplies store however will have a different set of challenges and opportunities. Most of its traditional consumer base would now have stopped or postponed “nonessential” purchases. By focusing on the latest trends and higher-end cosmetics, the store should be able to offset the loss of sales from the slam on the brakes and pained but patient segments by capturing the attention of the live for today, and comfortably well-off segments.

Cutting marketing activities or the marketing budget during a downturn therefore may not be the best decision for your business. It may be worthwhile exploring your market and your product or service suites for potential opportunities before taking the axe to marketing.

Boost Your Chance of Success by Joining the DUKE Heights Business Mentorship Program

The DUKE Heights BIA Mentorship program aims to help both the existing small and medium enterprises from DUKE Heights BIA and start-ups/entrepreneurs looking to improve business sustainability, profitability, and better position for growth by providing them with support and guidance. The program includes support and services from the BIA, regular time with a business mentor, and a structured program through which every aspect of business will be evaluated and further developed to take the business to the next stage. This is a free business support program; no costs are involved.

Apply Now to Find a Mentor

The program is currently accepting new applications from small and midsize businesses in the BIA.

Criteria:

  • Business must be past the conceptual phase and have a real product or service.
  • Business must have tested the product or service and/or have proven sales.
  • The business must have a business plan or forecasting backed up by research indicating future sustainability and profitability.
  • The business can be of any sector or industry
  • The business should have sufficient initial seed funding to start and run the business until additional funding can be secured.
  • The founders of the business should be involved in the business full time or show sufficient commitment to the business.

Mentees will be selected based on various criteria in addition to the requirements stated above such as potential match and alignment with our mentors and overall business potential. Shortlisted mentees may be required to present their business to a panel of potential mentors as part of their final selection to the program.

Click Here to Apply

 

DUKE Heights Business Mentorship Program (Small & Medium-sized Businesses)

Small & Medium-sized Businesses

Click Here to Apply

If you are a small or medium business in the DUKE Heights Business Improvement area (East to West, between Keele and Dufferin Streets, and North to South between Steeles and Sheppard Avenues), you qualify to join the FREE DUKE Heights Business Improvement Area (BIA) Small Business Mentorship Program.

The DUKE Heights Business Mentorship program for small businesses is an initiative from the DUKE Heights Business improvement area to boost and enhance the future success and sustainability of businesses in our BIA. The mentorship program forms part of the BIA’s economic development strategy which aims to improve the success and sustainability of businesses in the area.

The mentorship program will pair an experienced businessperson or specialist with needy businesses to provide guidance, advice, and support through a structured program framework that will cover all aspects of the business. The program will help small businesses overcome current challenges and improve growth and profitability.

The Small Business Mentorship Program is designed and structured on a modified Business Builder framework which aims to help small business owners create and drive successful business growth and profitability strategy.

Key Program Activities & Goals

The program includes the following main activities and goals:

  • Creating an effective business strategy from the owner’s aspirations and goals
  • Breaking the overall business goals into actionable and discrete activities to help the business improve:
    • Business growth
    • Customer numbers
    • Financial stability, profitability, and margins
    • Marketing and sales
    • Operations and efficiency
    • Product design and development

In addition to guidance and advice, each small business accepted in the FREE small business mentorship program will be eligible for the following:

  • Free business website
  • Free Digital marketing on social media and digital platforms
  • Free Billboard Advertising
  • Free Business evaluation and benchmarking
  • Free access to the business toolkit
  • Free profile and article in our newsletter and other print media
  • Free security services
  • Free consultation with a registered accountant to help with financial planning or grant applications
  • Free access to business webinars and networking events

Our volunteer business mentors will spend a few hours with you every week/month not only covering the different aspects of business covered above but also sharing with you the insights and knowledge they have gained throughout their lives in running or being part of successful businesses.

Apply Now to Find A Mentor

The program is currently accepting new applications from small and medium businesses in the BIA. The requirements to enter the program are listed below:

  • The Business must be a going concern for at least six months.
  • The business can be of any sector or industry.
  • The business should have at least one full-time employee and either lease or own property within the boundaries of the BIA.
  • The business owner must show a willingness and commitment to work with the business mentor to improve and grow their business.

Mentees will be selected based on various criteria in addition to the requirements stated above such as potential match and alignment with our mentors and overall business potential. Shortlisted mentees may be required to present their business to a panel of potential mentors as part of their final selection to the program.

Click Here to Apply

If you are dedicated to growing your small business, the DUKE Heights Small Business Mentorship Program can help you in growing your successful business. Please remember that we have a limited number of qualified volunteer business mentors, so we encourage you to apply while slots are available.

 

DUKE Heights Business Mentorship Program (Start-ups)

Start-ups and Entrepreneurs

Click Here to Apply

If you are looking at starting up a business or are already a small start-up, the DUKE Heights Business improvement area (BIA) has a FREE Business Mentorship program that can help guide you and your business to success.

The DUKE Heights Business Mentorship program for Start-up businesses is an initiative from the DUKE Heights Business improvement area to boost and enhance the future success and sustainability of businesses in our region of Toronto. The mentorship program forms part of the BIA’s economic development strategy which aims to encourage entrepreneurship and economic activity in North York.

The mentorship program will pair an experienced businessperson or specialist with needy businesses to provide guidance, advice, and support through a structured program framework that will cover all aspects of the business. The program will help the start-up overcome challenges and be better positioned for growth.

The Start-up Mentorship program is based on a modified version of the acclaimed business model canvas (BMC) to help understand, visualise, and implement business decisions.

Key Areas Covered

Key areas covered by the mentorship program include:

  • Business Strategy and idea validation
  • Business and product positioning
  • Finance, financial planning, and pricing
  • Differentiation and value proposition
  • Marketing – identifying target markets, marketing messaging, positioning, marketing channels, etc.
  • Sales – creating an effective and efficient sales process with targets and performance management

In addition to guidance and advice, each Start-Up accepted in the FREE small business mentorship program will be eligible for the following:

  • Free access to business webinars and networking events
  • Free access to the business toolkit
  • Free business evaluation and benchmarking

Our volunteer business mentors will spend a few hours with you every week/month not only covering the different aspects of business covered above but also sharing with you the insights and knowledge they have gained throughout their lives in running or being part of successful businesses.

Apply Now to Find A Mentor

The program is currently accepting new applications from Start-ups looking for business mentorship. The requirements to enter the program are listed below:

  • Business must be past the conceptual phase and have a real product or service.
  • Business must have tested the product or service and/or have proven sales.
  • The business must have a business plan or forecasting backed up by research indicating future sustainability and profitability.
  • The business can be of any sector or industry
  • The business should have sufficient initial seed funding to start and run the business until additional funding can be secured.
  • The founders of the business should be involved in the business full time or show sufficient commitment to the business.

Mentees will be selected based on various criteria in addition to the requirements stated above such as potential match and alignment with our mentors and overall business potential. Shortlisted mentees may be required to present their business to a panel of potential mentors as part of their final selection to the program.

Click Here to Apply

 

If you are dedicated to growing your Start-up, the DUKE Heights Start-Up Business Mentorship Program can help you in creating and growing a successful business. Please remember that we have a limited number of qualified volunteer business mentors, so we encourage you to apply while slots are available.

 

Cash Flow Challenges Faced by Businesses and How the BIA Can Assist

October 6, 2020

Written by: Atul Oka, Senior Director of Strategy and Business Development, DUKE Heights BIA

The impact of COVID19 has been particularly hard on many businesses across Canada. A poll earlier in the year by Stats Canada revealed that over 50% of businesses reported a decline in revenue and two-thirds experienced significant declines in consumer demand. Most business expenses however have remained static resulting in many businesses facing increased financial stress. With many areas expecting a second wave, consumers will once again become more hesitant in frequenting places of business and reduce nonessential spending.

Studies have shown that even in a healthy economy, 82% of small businesses that fold do so due to cash flow issues. How then can businesses better manage their cash flow? On the broadest level, managing cashflow revolves around two main themes, namely income, and expenditure. Traditional thinking around cash flow management while effective during normal economic conditions, cannot all be applied during the challenging environment many businesses currently face.

The initial and correct response for most businesses involves the reduction of overhead expenses where possible. These include cutting down all nonessential recurring expenses, as well as evaluating and rationalising essential expenses. Security services as an example may be seen as a nonessential cost that can be cut or reduced. If your business intends to cut or reduce security services, let the BIA help you supplement this by registering for the FREE security service offered by the BIA.

Both employment and rental costs also form a large part of any business which are often seen as areas where costs can be reduced. Cutting or reducing these costs in the short term however comes at the trade-off of less flexibility and agility when the economy improves, thus creating a disadvantage over the longer term. Businesses are encouraged to solicit professional advice so that they can best understand the financial state of the business, and the options available to the business, thereby making the best-informed decision possible during these trying times.
If you do not have access to a finance professional or require a second opinion, the DUKE Heights BIA is offering a FREE consultation with a professional accounting firm for both general financial planning, and assistance in accessing and applying for federal support grants or loans. This service will soon be supplemented by a funding tool that will be launched on the DUKE Heights BIA website, allowing businesses to better identify relevant funding for their particular needs.

While cost-cutting can relieve pressure on working capital, a concurrent and potentially greater drop in revenue may lead to an increase in total debt as businesses try and finance the shortfall utilising loans and other forms of debt in the hope that revenue will increase before the cost of servicing that debt becomes unsustainable.

In this instance, businesses have little choice but to explore adding new products and services to their offering, while expanding current sales channels to sell more, to a greater audience. Many businesses in the BIA are looking at creating an online presence and trying to sell directly to the end consumer. This change in business model can seem daunting, and lack of knowledge and skills on e-commerce can create a barrier inhibiting many businesses from implementing this change to their business model.

If you are exploring e-commerce but need any assistance, the BIA has, with various partners, created a suite of FREE digital services to help you with this transition. These services include a FREE initial evaluation and assessment of your digital needs by DMS (Digital Main Street), a grant to create or update your website including e-commerce functionality, FREE access to a large digital marketing platform called GetintheLoop which can expose your products and services to thousands of new consumers, and FREE marketing on social media channels.

As a key partner to all the businesses in the area, it is hoped that these FREE services and initiatives offered by the BIA, aimed at helping your business better manage short-term cash flow and long-term growth, are fully accessed and utilised by our members.

Should you require additional information on the BIA or the services available to you, please access our website (dukeheights.ca), or email us (info@dukeheights.ca).

What are the Legal Implications of Not Filing Taxes after One Year?

March 01, 2020

All resident corporations (except tax-exempt Crown corporations, Hutterite colonies and registered charities) must file a T2 income tax return for every tax year, even if there is no tax payable. Non-resident corporations also must file a T2 return in certain situations. These returns must be filed no later than six months after the end of each fiscal period, failing to do so will result in penalties.

The penalties for filing your tax return late is 5% of the unpaid tax that is due on the filing deadline, with an additional 1% of this unpaid tax for each complete month that the return is late up to a maximum of 12 months. This penalty will be even larger if the government issues a demand to file the return and it had assessed a failure to file penalty on the corporation in any of the three previous tax years. In such a case, the penalty would then be 10% of unpaid tax when the return was due, plus 2% of this unpaid tax for each complete month the return is late up to a maximum of 20 months.

Importantly, these aren’t the only penalties which companies may face. Additional penalties companies may be subject to include, but are not limited to, an instalment penalty and a variety of other penalties for not reporting income, false statements or omissions, misrepresentations, non-compliance with mandatory internet filing and more. It is important for your business to consult with a tax expert and, if needed, hire a tax lawyer to ensure your company is abiding by tax requirements to which it is subject. Doing so will allow you to plan for your company’s future and avoid unexpected fines and penalties which can throw off your company’s business plan.

That said, in practice, you may not always be able to file your taxes on time.  The key is to minimize the likelihood you will receive an unexpected letter or phone call from the CRA requesting an examination of financial records.  An audit is much more likely to be triggered if you have not filed your taxes for multiple years, rather than one year.  Thus, if you are more than one year behind, you would benefit by filing for the least recent year(s), rather than making no progress to catch up.

Entrepreneurs: Excelling in Products or Services? But What about Good Communication?

Freddy Velez*

March 01, 2020

It shouldn’t be only a question of word of mouth. Today it is not enough to excel offering products or services that all your clients appreciate and speak about. Effective communication is key to a company’s success. Having worked in corporate communication, journalism and marketing, I can attest that mastering the art of passing information along is very often undervalued and ignored. The basic example of how communications impact an organization can be compared to spilling water on a boardroom table. If it is a flat table, the liquid will go all over without direction and spill on the floor. A complete mess! If there are channels, the spill can be controlled. Not communicating at all is a form of communication -what a paradox! It is water spilled all over.

If the message is inappropriate or goes to the wrong audience, the image of the company can become muddled or confused; the consequences of which are numerous and costly. Communication is about contacting a targeted audience, the market, the prospect and current clients. Yes. That is also part of marketing and advertising, but communication is also about giving direction to employees. Letting them know about the goals, the achievements, and the challenges of the company, so they feel they are engaged and part of the game. There are other stakeholders to consider in a communications plan as well such as the company board of directors or the partners, the suppliers and those in charge of outsourcing projects for the company. In some cases, even media, government offices and community entities could be a target of communication.

Key things to consider

Here are some key points to consider when passing along any type of communication – from internal memos to executive summaries, social media posts, and press releases.

  • Define your audience. When you know who you are talking to, you know which channel is the most appropriate. Narrow your audience to the minimum possible but don’t leave out any important recipient. It is not always about reaching large audiences but, instead, to be efficient and to avoid saturating your audiences with information that may be not relevant.
  • Determine the right channel. Oftentimes you could be tempted to use as many channels as possible to communicate. Be careful… some channels are intended only for specific audiences. In social media, for example, Twitter users tend to like unbiased information and opinions while Facebook is seen as a popular information tool among those who are 30-year-old +. Also, when dealing with a crisis, it could be better to send an official bulletin and call a press conference rather than avoiding any public declaration or media appearance.
  • Be clear and concise.Get straight to the point. Time is of the essence nowadays and no one pays attention to long articles, successive / linked social media posts or more than three-page-long executive summaries. You have three seconds to get the attention of a reader on social media or the Internet.
  • Let it to the experts. Some small entrepreneurs and even some medium and large size companies, don’t have a team or a professional to manage communications. Investing in communications is not a waste of money, it is rather a way of saving money or increasing productivity and revenue. If you can’t afford to hire a professional at least contract someone as a consultant or freelancer. In the long run, it will pay off.

* Colombian-Canadian communications specialist based in Toronto. Special contribution for Duke Heights BIA. velezfreddy@hotmail.com

Starting a business? Avoid these classic entrepreneur pitfalls

January 01, 2020

Written by: Atul Oka, Senior Director of Strategy and Business Development, DUKE Heights BIA

Becoming an entrepreneur is a dream to which many of us aspire towards. There are many first-time entrepreneurs as well as experienced pros who sometimes make the same typical mistakes despite their best efforts. When you are finally ready to take the step and dive in, it may be worthwhile to keep an eye out for these common issues which could make or break your dream before it is fully realised.

Not creating a business plan is perhaps one of the most devastating mistakes a business owner can make. While sounding like something only larger businesses, or those looking to rise capital through traditional lenders need to do, a business plan allows you to think holistically about your business and assists in identifying potential issues in your idea.

Before starting any new venture, draft a simple business plan that identifies your proposed product or service, the costs involved, your funding needs, your competitors and potential customers, the market opportunity, and any realistic challenges you envision. If a business plan is just too complex to start with, try the simpler Business Model Canvas to get you started.

If you have not already completed a financial and cashflow forecast as part of the business plan, it may be worthwhile spend some time doing that now. While forecasting is not perfect, it will help you better manage and plan for your businesses funding needs. Some entrepreneurs misjudge costs, and end up spending more than they budgeted for or expected to, while others do the opposite and by trying to be careful and frugal, end up spending too little to give their business a realistic chance.

Another common challenge for any start-up is the selection of business partners. In many cases, you are not able to successfully launch a business venture on your own. You often need to rely partners and investors. Once major risk to any new business is in bringing onboard too many people. This can lead to the dilution of profits and sowing confusion on the business strategy. While key partners bring their own expertise, the old proverb about too many cooks still holds true.

Knowing your market and effectively marketing to that market is critical. Make sure you know who your target market actually is. Is there a specific client profile that needs and wants your products or services? Are you trying to sell your delicious abalone dish to people looking for a quick take away meal on the way home after a hard day’s work?

Know who you need to target your marketing spend towards to minimise wasted spend, but also make sure to target your market in the right way. What format of media does your market utilise and is most exposed to? Is it the “Selfie” generation or is it Mr Wilson from next door who is reluctant to use that Nokia 3310 that his son bought for him over twelve years ago? You know your product or service is useful and has a market. Don’t do your business a disservice by not letting the people who need it the most know.

Entrepreneurship can be the adventure of a lifetime but, like any adventure, it can also be fraught with pitfalls. Try and create the best possible chance of success for your business by avoiding some of these common mistakes.

3 ways to drive profitability

Written by: Atul Oka, Senior Director of Strategy and Business Development, DUKE Heights BIA
Dec 01, 2019

While most business owners want to increase profits, most do not have a plan to do so. Some say they will increase profits by boosting sales. But how will you boost sales? Will you hire more salespeople? Can you afford more salespeople? Will you leverage additional sales channels through which you can sell your products or services?

Will you try and help any customer that comes to you? Can you afford to do everything for every customer? Do you know which products or services are worth your time to produce or deliver? Do you know which products or services are actually profitable once you take input costs, overheads, salaries (Yes this includes your salary as well), delivery and other costs into account?

Will you perhaps expand to another location or add additional products and services? What will this entail?

It seems that no matter what the initial idea, some thought and planning may be required to make this a reality. This “plan” is often called a business strategy. It could be either a strategy for a specific functional area such as marketing or sales, or alternatively, it could be a complete and comprehensive business strategy. Developing a business strategy can be difficult but it is often the difference between success and failure. If your business does not have business strategy, speak to someone who can help you create one.

Creating a niche for your business is important in making your business different from your competitors and does not force you to compete with large companies with scale, that can offer the same products or services at a cheaper price. Every business should think like their target audience or customers. Know their exact needs, motivators, wants, dreams, goals, and interests. Find out what is valuable to your customers and what they are willing to pay a little extra for. Ever wonder why Starbucks (a normal coffee shop) was able to differentiate enough to grow much faster than their competitors?

Finally, it is important to create internal targets and goals. This helps to determine how well you are doing. One way to measure progress toward achieving your business goals is to use key performance indicators (KPI’s). Another is to use customer satisfaction as a benchmark for external performance and success.

KPIs provide us with an immediate snapshot of the overall performance of our businesses. To be used effectively, we need to measure and track the key performance indicators crucial to the success of our business such as profit margins per product category, and total sales. They also play a key role by providing vital decision-making information. (Do we sell more of product A or Product B? Which one is actually more profitable?)

Customer satisfaction can be measured using the Net Promotor Score (NPS) which we discussed in our last article. Have you done this for your business yet? How high is your Net Promoter Score?

“Profitability is coming from productivity, efficiency, management, austerity, and the way to manage the business” – Carlos Slim