A University of Manitoba business instructor has a couple words of advice for small business owners coping with impacts of the low Canadian dollar: be flexible.
Stuart Henrickson, Director of Entrepreneurship for the Stu Clark Centre for Entrepreneurship at the University of Manitoba’s Asper School of Business, says it’s not only larger-scale businesses that can benefit from the falling dollar, as long as you’re ready to adapt.
“As a general comment, when the Canadian dollar weakens, it is good for our economy,” Henrickson says. “On average, it means you can potentially sell more to people in the United States who are more than happy to pay in U.S. dollars. There are a lot of positives.
“There’s more flexibility, but you just have to keep your eyes open.”
Thanks to online sales opportunities, it is easier than ever for Canadian small businesses — if they’re set up for e-commerce — to take advantage of selling in the U.S. and abroad.
“You want revenues coming from other countries if you can,” Henrickson says. “You want to become a global marketer. If you’re able to market through the Internet, you want to market more now to the U.S. because it’s become a cheaper product for consumers in the U.S. They’re getting a 25 per cent discount to buy Canadian.”
While larger companies can hedge against currency fluctuations with foreign exchange contracts, that strategy simply isn’t available for a small company. However, by having a U.S. dollar bank account and ready alternatives to purchasing from American suppliers, small businesses can reap the sales-side benefits of a lower dollar.
“Small businesses can’t get those lines from the bank, so the alternative is to always have a U.S. dollar account available,” Henrickson says. “It’s a more realistic way for those 90 per cent of businesses who are small to hedge, in a way. We always tell smaller companies, if your market is such that you have to buy from the U.S., then make sure you have Canadian alternatives for when the currencies do turn this way.”
While the benefits are there for small companies, Henrickson cites a 2014 CIBC survey that pointed out most businesses are not doing enough to plan for currency fluctuations.
“Businesses don’t think enough about it,” Henrickson says. “(The report) said 65 per cent of businesses have no plan whatsoever to handle a lower Canadian dollar, even though it benefits the average company. You always need to be looking at that. What we try to teach entrepreneurs is that when you put together a business plan, always have your ‘what if’ scenarios in there. Nothing ever goes exactly as planned.”
While large companies may be able to have built-in strategies to cope with a lower dollar, smaller businesses can sometimes benefit from being more nimble.
“Large companies have a lot more flexibility in that they can hedge their dollars, which is great because they can predict for the future,” Henrickson says. “So a large airline can hedge their jet fuel costs, for example. On the negative side for a large company, it can be like turning a big ship — if you make a mistake it’s hard to make a change. Whenever I talk to small businesses, I try to teach them financial flexibility. In other words, you want to be in a position that when the world changes on you — and it changes every day — you need to be able to adapt.”
It all comes down to planning for fluctuations in dollar value.
“Make sure you have a Plan B,” Henrickson says. “We may not have thought it would go to 75 cents, but you could see the trend. It is a guessing game for everyone, but make sure there’s something in place. Financial flexibility is key.”
If your business is feeling the pressure of the Canadian dollar fluctuations, you're not alone. We'll be writing more articles to help you stay on top of current business trends, so keep posted to the Business Hub.