Transcript and Model Answers Small Businesses and the Canadian Economy Scotiabank is a leading bank in Canada. You will hear a group of senior executives discussing the impact of the Canadian economy on small and medium size businesses. Answer all questions The marks for each question are given in brackets Fred: Welcome to the Scotiabank Find the Money podcasts. I m Fred Ketchen, Director of Stock Trading for Scotia McCleod. These monthly podcasts call on some of Scotiabank s most knowledgeable experts to help you make the most of your money. Here we ll discuss strategies designed to put you in the financial driver s seat. Aron let me begin with you and ask you the logical first question, how is the Canadian economy performing as we spring into summer? Aron: Well Fred, I think we have the Goldilocks economy, it s not too hot, it s not too cold, you know what it s probably just about right. We ve got pockets of strength in the west, we have pockets of not-so-strong growth in central Canada but on average it looks to be fairly good. 1 The Goldilocks economy refers to (1) Steady economic growth in Canada without extreme regional variation Steady growth in the Canadian gold market Strongly varying economic performance all over Canada Fred: The one thing I remember about Goldilocks, Aaron, is that another part to that story, because there were always the three bears. I m watching for those fellows. Let s move outside of Canada and look at the international areas. International events are shaping the global outlook in what way at the present time? 1
Aron: Well, from a Canadian standpoint the fact is that our commodity boom which has, really, just done wonders for the outlook in not only the west but the east and the north is being driven by this spectacular boom in the developing nations of the world the China s, the India s throughout southeast Asia, Brazil. Go down the list of all these emerging economies that are doing exceptionally well and that s opened up a lot of new opportunities for Canadian businesses. 2 The boom in the Canadian commodities market is being driven by (1) Strong economic growth in developed economies Strong economic growth in emerging economies Growth in productivity in Canada Fred: Well let s come back to Canada again just for a minute, Aaron, what s this with the super strong Canadian dollar? Aron: Oh, you got to like it, Fred. Unless you re an exporter which means you re going to be a little bit squeezed, but for many Canadians who import goods obviously the Canadian dollar is going to be a beneficial aspect for them. Especially for a lot of small businesses who do import a lot of the equipment and goods from abroad. But what it really tells you is that in this world the U.S. dollar is losing some of its luster and the Canadian dollar is benefiting, not only because of interest in commodities, but because Canada is a well-run country. 3 The strong Canadian dollar benefits (1) Exporters All small businesses The US economy Fred: So we ve got the economic situation of Canada, we ve got the dollar, what does this outlook then mean for Canada s small and medium size businesses are prospects good, great, or maybe not so good? Aron: Well, I think again, we re going to go down right the middle; I m going to say they re pretty good. And because we re in an era of continuing growth and despite the 2
divergences in performance between regions and sectors, there is some underlying momentum mainly in the service industries which increasingly are taking over from traditional resource and manufactures as being the engines of growth and the engines of job formation. So we see a lot of gains around the country in different regions and so, therefore, I think the outlook is still fairly good. 4 The engines of growth and job creation (1) Are still the traditional manufacturing industries Are now mainly the service industries Have always been the service industries Fred: Can you tell our listeners what challenges small and medium size businesses are and will be confronted with in the near future? Aron: Well clearly costs are a big factor here and even though a stronger dollar would help to offset some of the inflation that appears to be coming through from food and energy and transportation costs and increased regulations in the environment the real big issue, of course, is the cost of labor and that s probably the biggest challenge. 5 The main cost factor for small and medium size businesses is (1) Inflation Labour Energy and transportation Fred: Well let s focus for a moment on those labor issues that you just mentioned. How real are these shortages, and is this just a regional or a western issue? Lastly, how are firms and governments dealing with this critical issue? Aron: Well, Fred, this is just not a local issue or regional issue, this is an international issue and this is one of the challenges that small and medium size firms will have to face here in Canada for a long period of time. Not only are we drawing workers from across the country to the high-growth centers in the west and to some extent to the 3
east as well, the bottom line here is that there are shortages globally as well and we are in a very competitive environment. From a Canadian perspective, many Canadians are moving from east to west. We are also seeing a tremendous amount of new immigration into Canada largely centered still in central Canada but increasingly moving to the west, the high-growth regions are the magnet for people. 6 The current shortages of labour are caused by (1) (any one of two) Workers moving to regions of high-growth International immigration Global shortages (2) Fred: What are you seeing in terms of new small business in Canada? Aron: Well, we are seeing more challenges, but more opportunities and what we re seeing, of course, is there s a trend right across the country in virtually every province that with new immigration into this country to fill these job shortages; we re seeing a lot more establishments being formed. 7 New small businesses are being formed because (1) Job shortages are being filled by immigration New funding opportunities are being established in every province There are challenges and opportunities Fred: Well, in terms of new small businesses, Kyle, let me turn to you. So, say you re planning to start your own business, how do you begin? Kyle: Well, you want to get your business plan down in writing and it doesn t need to be a big complicated business plan. We recommend 8 to10 pages maximum, keep it simple. Fred: Why is constructing a business plan so important? Kyle: For a variety of reasons, it really keeps you focused in on your goals. Keeps all of your stakeholders focused in on their goals as well so your partners, your staff, 4
your advisors like your accountants or your lawyers and it also allows you to forecast, anticipate problems and mitigate those problems as well. And finally, it s an essential aid when you re applying for financing through a bank or through your small business banker. 8 List 3 reasons given by Kyle for the importance of a business plan for entrepeneurs A business plan keeps the entrepeneur and other stakeholders focused on the goals A business plan allows problems to be anticipated A business plan is essential when negotiating finance with banks Fred: It s sort of like the business plan I would imagine then, is something like the map you know where you are, you know where you want to be so your plan helps you leave from A and arrive at B. Kyle: Absolutely, the old adage is true; failing to plan is planning to fail. Fred: What does a business plan need to include then. Can you give us some aspects of that question? Kyle: Sure, it should have two different aspects. One s a qualitative description of the business. So how s its going to operate, where it s going to operate, what s the market place like, what do competitors look like in that market place, what do your customers look like and then also how are you going to sell and market your services or your products. And then the second aspect s really around the financials associated with the business so the projected financial statements. 5
9 Give 3 elements of the qualitative aspect of the business plan (3 out of 4) How and where the business will operate, what the market place is like, who the competitors are, what the customers look like, how to sell or market the products and services Fred: What about financing a new business, how do you go about doing that? Kyle: Well, there s really two key ways. You can look at equity, so your personal investment in your business, or maybe an equity investor, or you can look at borrowing. And there s a number of different options there. You can go to a bank for financing, there s a number of government loan programs. You can also look to other sources like your suppliers that are going to provide you inventory or equipment, they can provide you financing as well. 10 How, according to Kyle, is a new business financed (give 3 points)? (any 3 out of 6) Personal investment equity investment borrowing. (do not give a point for this, if any of the following answers are given) borrowing from banks borrowing from the government borrowing from suppliers Fred: And what are the different types of financing that a person who wants to startup a business can access? Kyle: Well really when you re looking at the type of financing, you re first going to look at what are the funds going to be used for. So for fixed assets, like furniture, equipment or vehicles, you really want to look at a product that s going to be tied to the length of the asset or the expected life of the asset so a term loan or a lease. For something like inventory or accounts receivable where they tend to go up or down 6
generally it s a line of credit and you only pay interest when you re actually using that line of credit. And then for day-to-day purchases or expenses, you may want to look at something like a visa card or a master card; it allows you to take advantage of the grace period associated with that. So from the time that you receive your statement to the time that you have to make a payment, there s a grace period and that allows you to delay paying out money, and you could use those funds within the operations of your business. 11 Kyle states which type of financing is best for which purpose. Complete the table (2 points: one point each for any 2 right answers out of 4) Fixed assets Inventory Accounts receivable Day-to-day purchases or expenses Term loan or lease Line of credit Line of credit Credit card Fred: Like many other aspects of life, you get all excited when you get into a new venture and some are successful some aren t, why do some businesses fail? Kyle: Well, the main reason is for a lack of planning, it goes back to your business plan. The business plan is so important because it helps you mitigate issues before they occur. We ve got a brand new plan writer, a business plan writer that we offer for free at Scotiabank.com, and within it there s a number of different links to help you research your customer needs, research the industry, research the competitive environment by having an understanding of all these things. You re going to mitigate the risks associated with the potential issues that you may encounter when running your business. 12 What does Scotiabank offer without cost and to whom? (2) A plan writer/a business plan writer, offered to new businesses 7
Fred: Well, we know about planning, we know a little bit about financing, what do banks offer to help a small business owner get started? Kyle: Well, some banks do provide programs that help businesses get started. We at Scotiabank we ve got the business plan writer that I reference previously, we ve also got a brand new bundle of services and products which we call the running start for business banking package. It includes discounts on business products and personal products, a complimentary copy of Intuit quick books Easy Start Accounting software, and a discounted offer to help you build logo and marketing material to help you get that revenue in through the door as quickly as possible. 13 What incentives, apart from the free business plan writer, does Scotiobank offer to new businesses? (4) Discounts on business products Discounts on personal products A free copy of a book about accounting A discount on assistance with marketing Fred: So, I would think that if you re out there and you re thinking about a new business, two or three things are important. First of all, the economic fiber under which we live, the changes that are taking place, obviously important to developing the opportunities in new business and all of the many things that Scotiabank does offer to the business people in order to get this thing started, to move it along and make it successful. That s why bankers, I guess, are bankers. Kyle: Absolutely, the importance of the advice that a banker can provide is invaluable. Fred: And it s available to anybody who really wants to access it. Kyle: Absolutely. Fred: Thank you Kyle and thank you Aron for sharing your insights with us today. And we hope this comprehensive view of the economy, its impact on small business and how to get your small business off the ground has been helpful. And we do thank you for listening. I m Fred Ketchen, please join us for our next podcast. And for more information, please drop by your local Scotiabank branch because we d love to have the opportunity to talk with you 8
14 Is the Podcast intended primarily to give advice to new businesses or to sell the products of Scotiabank? Give a reason for your answer (2) 2 points for any justified answer showing critical reflection of any kind Total number of points: 25 9