Despite misgivings about the economy, nearly three in four Canadian entrepreneurs plan to invest in their businesses in 2016, a new study by the Business Development Bank of Canada (BDC) has found.
Owners of small and medium-sized businesses intend to invest a total of $111 billion in 2016, an amount similar to what was invested in 2015, according to BDC’s survey of investment intentions.
“While Canadian entrepreneurs are wary about the state of the economy, they appear generally optimistic about the future of their business,” BDC Chief Economist Pierre Cléroux said. “It is encouraging to see small businesses remain focused on growth and productivity in spite of a challenging economy.”
The investment intentions of small and medium-sized businesses are a significant indicator of Canada’s economic vitality, since SMEs represent 99.8% of all Canadian firms. A willingness to invest in assets such as equipment, machinery and IT is key strategy of fast-growing businesses, a separate BDC study found.
“The future belongs to entrepreneurs who invest in their businesses,” Cléroux says.
First study of its kind
This BDC survey of investment intentions is the first study of its kind in Canada. The survey of 4,000 entrepreneurs was conducted from August to November.
Ontario has the largest number of small business of any region in Canada (35% of all small businesses) and the survey found the province also holds first place for total planned investments ($44 billion.) This represents 40% of the value of planned investments for Canada and is 2% higher than in 2015.
Ontario entrepreneurs also have greater than average optimism about their business prospects in 2016—49% believe their revenues will increase, compared with 45% of all the survey respondents.
That said, more executives in Ontario mentioned having difficulty in obtaining the financing required for their investment projects. The survey indicates that nearly one Ontario small business out of five (17%) is having trouble raising the funds required to carry out projects. This is considerably higher than the national average (13%).
Start-ups businesses as well as those experiencing high growth were the most likely to report financing difficulties.
Additional details are available in the BDC survey report.
Entrepreneurs invest to grow and boost efficiency
Top reasons cited for investing were to fund growth plans (77% of respondents) and to boost productivity or efficiency (75% of respondents).
The main factor limiting investment is a lack of confidence in the economy (48%).
In terms of value, the largest planned investments were earmarked for commercial real estate projects, with a total of $63 billion allocated for 2016, a 5% increase from last year.
Investments in technology continue to attract the attention of a majority of businesses. Of the small businesses that intend to invest in 2016, 59% are choosing to purchase computer hardware and software, while 51% are opting to develop a website and e-commerce activities.
The fastest-growing companies are most likely to be planning information technology investments.
The time is ripe to invest
Three quarters of planned investments come from just 10% of firms. These companies are more likely to export and invest abroad. They have also been in business for more than 35 years on average and have 20 or more employees.
These findings reinforce the idea that a small number of businesses have a high impact on the Canadian economy. In a report published in 2015, BDC showed that “high-impact” enterprises play a key role in job creation, GDP growth and improvement in Canadian competitiveness.
“These SMEs [who invest] have better growth prospects, a larger number of employees and the best chance to succeed in international markets,” says Mr. Cléroux. “We strongly encourage SMEs to step up their investments in the coming months. Also, with the cost of borrowing at an all-time low, the time is ripe.”