WU Western Union Company

Almost half of larger Canadian small businesses (47%) and one in four mid-sized Canadian small-businesses (26%) expect international trade conditions to improve in 2016, according to research conducted by Western Union Business Solutions, a division of the Western Union Company (NYSE:WU).  The larger firms expect an average 2016 improvement of 7.5 percent, and the mid-sized businesses foresee an average improvement of 6.8 percent.

The findings are a result of independent interviews with nearly 2,200 randomly selected larger (C$20-100 million in annual revenue), medium mid-sized SMBs (C$5-20 million in annual revenues), and micro SMBs (C$1-5 million in annual revenue) across Canada.

Larger Canadian SMBs are significantly more optimistic about international trade than smaller businesses. The survey found that 47 percent of larger SMBs expect international trade conditions to improve, while 25 percent of mid-sized and 14 percent of micro firms expect improvement.

Turning to confidence in the domestic economy, on a scale of 1-5 (with 1 = very confident and 5 = not at all confident) confidence in the domestic economy among micro-sized businesses improved from 2.50 to 2.43 since June 2015, while confidence among mid-sized businesses improved slightly from 2.38 to 2.31. Although larger small businesses express the highest level of confidence towards Canada’s economic climate, in comparison to mid-sized and micro businesses, the segment’s confidence ratings improved by only two points in the last six months to 1.96.

The survey also found that:

• An average of 29 percent of Canadian SMBs surveyed believe business costs have fallen compared to one year ago, while 55% believe costs remain unchanged.
• Respondents were mixed about the domestic economy with about 22 percent of the businesses surveyed saying it had improved in the last year, and 31 percent saying it had gotten worse.
• “Our survey found that while small businesses are reporting a strong tailwind from falling energy costs and lower business costs, almost all are also contending with the effects of a strong U.S. dollar and a weakening Canadian dollar,” said Scott Smith, North American Managing Director, Western Union Business Solutions. “These currency conditions are a fundamental aspect of business planning to manage exposures to both large economies, like China and India, and Canada itself. Particularly in a resource-based economy like Canada, small businesses’ sensitivity to commodity pricing highlights the delicate nature of this segment’s profitability, which can be offset by payment strategies such as currency hedging.”

2016 Spending Outlook

The survey found that internet sales and marketing is the top priority for business investment by Canadian SMBs over the next six months with 33 percent overall saying it was a main focus. Smaller companies have a greater focus in this area than larger ones, with 40 percent of micro businesses saying they intend to make internet sales and marketing investments, followed by 31 percent of mid-sized firms and 27% of larger businesses.

Investment in technology support is the second most popular area where Canadian SMBs say they intend to make additional investments in 2016 with an average of 18 percent of SMBs indicating they would do so.

New product/service expansion represent the third-leading area where companies are planning to make investment in 2016 (18% of all SMBs surveyed), followed by new product/service expansion (17%), followed by increased exporting/export market development (16.3%), and investment in plant and equipment (10.9%).

“Effectively used, technology is simply the most powerful tool a global small business can deploy,” Smith continued. “These businesses are making powerful technology investments to cut time and expense from their businesses, and shorten the sourcing and delivery of their products and services to global markets.”

Operating in a Volatile World

Managing payment issues in today’s world can be time-consuming for time-constrained businesses small businesses. The survey found that larger SMBs spend an average of 23.1 hours per week on payment issues, compared to an average of 7.2 hours weekly for medium-sized SMBs and only 4.6 hours weekly for micro SMBs. It is Western Union’s general experience that smaller SMBs have fewer employees, so the burden of payment issues is likely much greater in smaller businesses.

For many Canadian SMBs, cash flow produces major concerns. Approximately 52 percent of all Canadian SMBs surveyed report squeezed margins as the leading challenge, followed by a lack of credit availability (29%), and late / delayed receipt of payments (29%). Notably only 4% of larger SMBs cited a lack of credit availability as a current cash flow challenge.

Cash flow is all the more important for SMBs when we examine the financing they report using. More firms overall report using working capital to finance their businesses (87.7%) than equity (85.4%), followed by secured debt lines (54.2 percent).

“Since compressed margins are the biggest current challenge facing Canadian small business owners, it emerges as a key focus area for FX providers,” Smith added. “Providing dedicated support, education and guidance on the costs of hedging and risk management are vitally important for less sophisticated SMEs and micro businesses who are clearly exposed to variations in the CAD and USD. The smaller the business, the less time, planning and strategic direction they have to plan and manage their currency exposure. They are unlikely to devote time to foreign currency management and invoice tracking.”

The survey was conducted in October and November, 2015, by East & Partners and included 2,201 Canadian enterprises engaged in international trade. Of the companies surveyed, nearly half (48%) of the participants surveyed are business owners or CEOs, while the remainder are CFOs, finance directors, or treasurers.  Participating companies hailed from a variety of industry sectors, including property and business services (17.1%), retail (10.1%), construction (10.5%), manufacturing (4.6%), transport and storage (5.5%), and wholesale (6.7%). About 23% of survey respondents are from businesses based in Montréal and other Québec cities, while 48% are from Toronto, Ottawa or other Ontario cities, and 39% British Columbia, Edmonton and other Alberta, and other regions. The margin of error associated with this level of reporting is +/- 2.0% at a 95% confidence level.

Western Union Business Solutions enables companies of all sizes to send and receive international payments and manage global cash flow, creating unique solutions tailored to suit their individual needs. It is a business unit of the Western Union Company (NYSE:WU), a leading nonbank provider of cross border payments, which offers Business Solutions services in over 30 countries.  Clients are supported by a network of trading offices, strategic banking relationships and a global clearing network and can send cross-border foreign exchange payments in more than 135 currencies.  About Western Union The Western Union Company (NYSE:WU) is a leader in global payment services. Together with its Vigo, Orlandi Valuta, Pago Facil and Western Union Business Solutions branded payment services, Western Union provides consumers and businesses with fast, reliable and convenient ways to send and receive money around the world, to send payments and to purchase money orders. As of December 31, 2015, the Western Union, Vigo and Orlandi Valuta branded services were offered through a combined network of over 500,000 agent locations in 200 countries and territories and over 100,000 ATMs and kiosks, and included the capability to send money to over one billion accounts. In 2015, The Western Union Company completed 262 million consumer-to-consumer transactions worldwide, moving $82 billion of principal between consumers, and 508 million business payments. For more information, visit www.westernunion.com.

Media Contacts:

Liesl Smith                             
Western Union Business Solutions        
T: +44 (0) 208 563-6347         
Liesl.Smith@westernunion.com    

John McInerney
Makovsky
T: +1 212-508-9628
M: +1 646 291-7024
jmcinerney@makovsky.com