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A surprising sense of economic optimism among Canada's small business owners has led to a widespread lack of contingency planning, says a new Harris/Decima report commissioned by BMO Bank of Montreal.

According to the results of the survey, 70 per cent of small business owners describe the Canadian economy as ‘good' while nine per cent describe it as ‘excellent'. In addition, 92 per cent believe they can withstand financial difficulties and almost two-thirds of these are so confident they have no contingency plan in place in the event of an economic downturn.

“While it's encouraging to see such optimism among small business owners, a contingency plan should be of paramount importance particularly in times of economic volatility,” said Gail Cocker, Senior Vice President, Commercial Banking, BMO Bank of Montreal. “From our experience, the best time to develop and review contingency plans is during good times rather than scrambling to adjust during a sudden downturn.”

Contingency plans are often devised by businesses that want to be prepared for the unexpected. These plans include specific strategies to deal with critical situations such as an unexpected inventory issue with a key supplier; a monitoring process in place to ensure a business stays on top of its key relationships; and “event triggers” such as new industry legislation, market downturn, new industry players, currency fluctuation and commodity price changes.

The study found the retention of business savings is the most popular form of dealing with financial challenges. More than half of small business owners opt to use their savings for future protection and over 40 per cent say they are prepared to put their own personal savings to use in the event of a financial downturn. Streamlining processes was almost as popular among respondents with half opting to identify inefficiencies as their contingency plan.

“With the strong Canadian dollar, small business owners, especially those in the manufacturing sector, are being impacted. While seeking greater efficiencies is an excellent practice, it's important that all small business owners seek advice on how to develop a contingency plan that is best-suited to their business needs,” said Ms. Cocker. “A good plan should consider a number of scenarios with focus on day-to-day business operations and include a clear strategy on how to execute the plan in a timely manner.”

Talk to a Commercial Banker

“There is no better time than now to come in and talk to one of our commercial bankers. We would be pleased to work with you on developing a contingency plan,” said Ms. Cocker. “We are the most consistent small business lender in Canada and we are a bank that you want to be with throughout the business cycle. Our lenders in the field have local authority and can respond immediately to our customers' needs,” added Ms. Cocker.

In addition to its in-branch expertise, BMO Bank of Montreal has created external resources to help small business owners enhance their bottom line objectives, including a nationwide seminar program, a business information brochure series called the Business Coach which focuses on essential areas of financial management and an online series by the same name of more than 20 Podcast episodes produced in partnership with PROFIT Magazine and recently L'Actualit� in Quebec.

Regional Differences

• Western Canadian small business owners currently savouring the energy boom are more confident in the stability of the Canadian economy than small business owners in Ontario, which has suffered a hit to its manufacturing sector.
• Contingency planning is more prevalent in Western Canada than in Quebec, the Prairies or Ontario. Out West, almost half of small businesses have a back-up plan in place. Not coincidentally, the same region has the second highest level of confidence in its ability to withstand an economic slowdown. The Prairies lead in their level of confidence.
• Two sides to the coin — 51 per cent of small businesses in the Prairies and 38 per cent in Western Canada say the rising Canadian dollar has had a positive impact on their bottom line compared with 24 and 26 per cent in Quebec and Ontario respectively.
• More small businesses in Quebec (12 per cent), Ontario (10 per cent) and Western Canada (7 per cent) say the U.S. economy is in severe recession, compared with only two per cent in Atlantic Canada.
• Fewer small businesses in Western Canada (2 per cent) than in either Quebec (12 per cent) or Ontario (7 per cent) say Canada is in a recession (mild / severe)

Economic Outlook

• According to BMO Economics, Canadian small businesses should fare better than their U.S. counterparts over the coming year. “Canadian retail businesses are generally in solid shape, with consumer spending strong across the country, in stark contrast to the darkening U.S. outlook,” said Doug Porter, Deputy Chief Economist, BMO Capital Markets. “This has played a key role in keeping Canadian employment conditions robust.”

• Canada should see growth of about 1.4 per cent for all of this year, about half of last year's pace. That would be our weakest economic performance in 16 years,” added Mr. Porter. “The good news is that the economy went into this uncertain period in good condition, with inflation below 2%, the unemployment rate at 6%, and government finances generally healthy.”

The online Harris/Decima poll was conducted from Feb. 14 to 27, 2008 and based on sample of 777 Canadian small business owners (with 1-49 employees with annual revenues of $5 million or less) from across the country.