More than a third hurt by weakened currency but few have proactive strategy to manage
TORONTO, Nov. 5, 2015 /CNW/ - Although the recent decline in the Canadian dollar may be a boon for some industries, a new poll by CIBC (TSX: CM) (NYSE: CM) finds that more than one-third (37 per cent) of Canadian small business owners say their business is worse off as a result of the falling loonie.
Highlights of the poll include:
- 37 per cent of business owners polled say the recent decline in the Canadian dollar against the U.S. dollar has had a negative impact on their business
- Only 19 per cent say they have benefited from the lower dollar
- 44 per cent say the fall in the dollar has had little to no impact
- A prior CIBC poll revealed that 65 per cent of small business owners haven't taken any steps to protect their business from currency fluctuations
"Some small business owners are clearly feeling the effects of a fluctuating exchange rate on their bottom line," says Shelley Swanlund, Vice President, CIBC Business Banking and Head of Small Business. "While less than one in five have benefitted, many more are feeling the pinch. Some proactive planning now, however, can help mitigate the negative impact."
The loonie has seen a steep decline against the greenback over the last three years, slipping nearly 30 per cent from a high of US$1.04 in September 2012 to a recent low of about 74 cents U.S. in September this year. Despite this significant swing, an earlier CIBC poll found that 65 per cent of small business owners had not taken steps to protect their business from currency fluctuations.
Adapting to a weaker dollar
"While the majority of owners say the drop in the value of the loonie is having an impact on their finances, we know only a third have taken action to address the business effect of a fluctuating dollar," says Ms. Swanlund. "For businesses that need to purchase raw materials or supplies abroad or those importing goods for sale, even small swings in currency can make it harder to compete and affect their bottom line which highlights the need to have a currency strategy."
Ms. Swanlund suggests that companies who buy products or services south of the border should open up a U.S. dollar bank account. This can be used to pay bills, and to have the opportunity to convert funds when the loonie climbs, such as in the last few weeks that saw a five per cent jump in value for the Canadian dollar.
Small business owners need to think beyond our borders
A recent report from CIBC Economics points out the importance of the small business sector to the Canadian economy noting it created 80 per cent of all new private-sector jobs in the last year. The report also highlighted that this was largely driven by the housing market and Canadian consumer spending.
Given the slowing domestic market, a weaker loonie and upswing of economic activity stateside, Benjamin Tal, Deputy Chief Economist and one of the authors of the CIBC report, says it is important for Canadian small and medium-sized businesses to become more export oriented.
Ms. Swanlund agrees that now is the time for many small businesses to build or expand their export focus. "Not all business owners can continue to rely on the consumer to deliver growth, and a weaker loonie is opening up new opportunities beyond our borders," said Ms. Swanlund. "While it needs to be carefully planned out, many businesses can benefit from a weaker dollar to look abroad for new customers, but it is important to first sit down with advisors who understand the financial, operational and logistic challenges of exporting."
Tips for managing currency fluctuations:
- Have a currency plan. Include a currency fluctuation strategy in your business plan. For example, CIBC small business advisors work with owners to explore options such as holding U.S. dollar accounts, using FX hedging strategies and having access to capital to address fluctuations in cash flow.
- Build flexibility into your business model. Currency fluctuations and other unexpected expenses can catch small business owners off guard. Be sure your business can withstand temporary fluctuations in cash flow by having access to an emergency reserve fund, whether it is accumulated savings or a line of credit.
- CIBC's foreign exchange specialists as well as FX Online @ CIBC offer tools and advice to carry out trades in foreign exchange swiftly (e.g., monitor real-time foreign exchange rates, access all trade details in one location, receive an audit trail on your transactions)
- Leverage other free online tools such as the CIBC Your Guide to Business Planning, found in the CIBC Small Business Advice Centre.
KEY POLL FINDINGS:
How business owners say the decline of the Canadian dollar against the U.S. dollar is having an impact on business?
| Positive impact
• Very positive (7%)
• Somewhat positive (12%)
| Negative impact
• Very negative (11%)
• Somewhat negative (26%)
|Little to no impact||44%|
Canadian business owners' preference on what CAD/USD situation is better for business:
|Parity between CAD and USD||33%|
|CAD weaker than USD||24%|
|CAD stronger than USD||16%|
|CAD/USD exchange rate does not affect my business||27%|
From September 23 to September 25, 2015, an online survey was conducted among 751 randomly selected Angus Reid Forum panelists who are small business owners. The margin of error - which measures sampling variability - is +/- 3.58 per cent, 19 times out of 20. Discrepancies in or between totals are due to rounding.
CIBC Small Business Services
For nearly 150 years, CIBC has been providing small business owners with the advice, services, and support they need to thrive and grow. CIBC recognizes that the business and personal finances of small business owners are often intertwined, which can present both opportunities and challenges. We believe that the best advice comes from someone who understands your needs as a business owner and as an individual.
CIBC provides small business owners with the services of a dedicated CIBC Small Business Advisor, who acts as a single point of contact for all small business owner needs. This experienced professional is committed to understanding the business and the industry in which small business owners operate, as well as their personal financial goals. CIBC business advisors work with small business owners to find integrated solutions to help them achieve their vision for their business and their life.
CIBC is a leading Canadian-based global financial institution with 11 million personal banking and business clients. Through our three major business units - Retail and Business Banking, Wealth Management and Capital Markets - CIBC offers a full range of products and services through its comprehensive electronic banking network, banking centres and offices across Canada with offices in the United States and around the world. You can find other news releases and information about CIBC in our Media Centre on our corporate website at www.cibc.com.
For further information:
Olga Petrycki, Director, External Communications, 416-306-9760 or [email protected]