How the Sinking Canadian Dollar Affects Your Small Business
With the Canadian dollar dropping below 70 cents on the U.S. dollar for the first time in over 12 years, small business owners have one thing on their minds; how does this affect me? The truth is, every Canadian small business is unique and there is no one-size-fits-all answer. Some will be negatively affected, some positively and some not at all. To see where your business lies, let’s dive in deeper.
The Good News
There are a few ways in which your business may see a bump in sales. First off, Canada is seeing an influx of shoppers. This is especially crucial for businesses located close to the U.S. border as American tourists are making the trip up north to take advantage. If you’re one of the lucky ones with a businesses in this area, make sure you take advantage and advertise at hotels, in travel guides and on websites that tourists often visit (i.e. TripAdvisor, Yelp, etc.). That being said, the potential isn’t limited only to Southern Canadian locations. In 2013, Canada was the 4th most popular country for online shopping based on a study by Modern Spice Routes across the U.K, Germany, Australia, China, Brazil, the U.S. and Canada. This market is predicted to spend $13 billion on Canadian goods in 2016.
All that to say your business should be set up to export your products if possible. If you don’t have your own website you have two options, create one or use another service such as Amazon, eBay or Etsy. Having no online presence, especially in 2016, just isn’t an option anymore. Don’t be overwhelmed with the online world; go with an option that best suits your needs. For example, creating your own e-commerce site is a big project but if you’re working with serious volume and have the technical support it can be a lucrative option. Paid options such as Shopify and Lightspeed exist and are a great investment. If you need the capital for your ecommerce needs, a merchant cash advance or small business loan can get you the funds you need quickly.
The Bad News
Even though exports are bringing in more cash flow than before, they also come with additional costs that lower profitability. There are ways to mitigate this however, such as hedging, which involves opening up a foreign bank account to take advantage of preferable rates among other strategies.
As expected, with exports being profitable, imports have become more expensive. Retailers will be hit especially hard here as many of their goods are often imported in U.S. dollars. To put this in perspective, compared to when the dollar was at par, they are making 30% less on goods imported from the U.S.
So What Do I Do?
As the low dollar has been attributed to low oil prices, which aren’t forecasted to change in the near future, Canadians need to prepare for the long haul. Although not always possible, do your best to minimize imports and maximize exports. If you have outstanding balances with U.S. companies, try to pay them off before the dollar drops lower and stock up when the rates are good. If you don’t have the required cash flow to make these lump sum payments, Evolocity can help. Overall, almost every Canadian business will feel some impact and each business must do what they can to soften the blow.