Use the government and banks to your company’s advantage

“I’m from the government, and I’m here to help.” During a 1986 speech, the late U.S. president Ronald Reagan called those “the nine most terrifying words in the English language.” But a raft of initiatives unveiled in recent years suggests that Canadian governments at all levels see not a whit of irony in that durable aphorism.

And that’s not such a bad thing. Here are just a few of the ways government is helping Canadian entrepreneurs, no irony intended: the recession-ready Business Credit Availability Program, which allows Export Development Canada to lend money to SMEs in partnership with Canadian banks; the establishment of provincially funded venture-capital funds; the federal Small Business Internship Program, which subsidizes the wages of student employees involved in helping firms adopt e-business tools and strategies; and even the introduction of the HST in B.C. and Ontario, which eliminates a cumulative tax and does away with one set of tax filings.

Another is BizPal, a partnership of federal, provincial and local governments established in 2005. It’s an online clearing house of information about the licences and permits that businesses require for hundreds of activities in 11 of the 13 provinces and territories and more than 400 municipalities. Since the introduction of the website, a business owner no longer has to visit multiple websites or make multiple phone calls to determine his regulatory obligations. Today, that owner can visit and click through a short series of menus to generate a list of required permits and licences for a vast assortment of business activities.

For instance, say you’re going to start a licensed restaurant in Airdrie, Alta., performing minor renovations to an existing building and putting a sign on it, with plans to operate a company car and play music in the dining room. Within two minutes of arriving at, the site will tell you which 13 permits and licences you need to obtain to stay on the right side of the law. The paperwork and licence fees don’t go away, but at least you know what you’re getting into.

Believe it or not, businesses are generally generating less paperwork. According to Statistics Canada, government-paperwork submissions by SMEs dropped by 8% from 2005 through 2008, the equivalent of three filings per business. And according to a report issued last January by the Canadian Federation of Independent Business (CFIB), companies of all sizes spent $400 million less on compliance costs in 2009 than they did in 2005.

Sadly, that means Canadian businesses still spent $30.5 billion on preparing permit applications, tax filings and the like, in one year. The report also states that 41% of business owners believe that a 10% to 25% reduction in the paperwork burden could be achieved without sacrificing the public interest-which would be “the equivalent of a $3-billion or $7.5-billion annual stimulus package. Imagine the productivity, jobs and higher wages that would result.”

The pain of red tape in Canada might not be so bad if government staff didn’t add insult to injury. The Canada Revenue Agency remains a popular magnet for the ire of business owners, who complain that tax-policy interpretations are not only hard to obtain from CRA officials but unreliable as well. “Some of the big accounting firms have told us that they’ve phoned the CRA seven or eight times in order to get the majority view,” says Catherine Swift, president and CEO of the CFIB. “Isn’t that disgusting?”

Mike Jagger might share that sentiment. For close to six years, his Vancouver-based security business has been fighting the B.C. Ministry of Finance over provincial sales tax he never charged his customers because he’s sure it doesn’t apply to the products in question. Still, he has paid out $300,000 in remittances and penalties-and still owes more. “It’s the principle of the thing,” says Jagger, president of Provident Security Corp., a 175-employee firm that provides security personnel and such services as alarm installation and monitoring. “We’ve spent more on all the back and forth than the amount we owe.”

What really burns Jagger up is the unresponsiveness of government agents to his inquiries; through the beginning of October, ministry staff had still not replied to a letter Jagger had sent them in February. And when they have responded to past calls and missives, he says, they’ve simply restated their position without addressing any of his specific points.

Jagger vows not to give up his PST fight, although he has put this old saw into practice: “If you can’t beat ’em, join ’em.” This year, he joined a 25-member advisory panel that meets every two months to discuss business issues with B.C. Premier Gordon Campbell and Finance Minister Colin Hansen.

“The ability to get yourself to the table in advance is so much more productive,” says Jagger. “It’s easier to help shape new policies than to get government to change bad ones.”

Bank Financing

The relationship between banks and small and mid-sized enterprises has been portrayed as adversarial for, well, as long as banks and SMEs have coexisted. So, the results of an August 2009 survey of 200 SMEs conducted on behalf of the Canadian Bankers Association (CBA) might surprise some. More than three-quarters (78%) of respondents said they have a positive relationship with their main financial institution. Among those with loans or credit lines from their bank, 90% said the relationship was good or better, and 58% went as far as describing it as “very good.” This during a global credit crunch and recession.

Maybe the CBA interviewed the right 200 people. But data from the PROFIT 100 ranking of Canada’s Fastest-Growing Companies would confirm that most businesses and banks are getting along-with a caveat. In the years PROFIT has asked growth-company CEOs whether they like their bank or credit union, 70% to 80% have said yes. However, the majority of them also have said they had switched institutions at least once before finding banking bliss-suggesting that it pays to shop around.

Either way, banks and credit unions provide vital support to Canada’s independent businesses. In 2007, the most recent year for which data is available, the value of outstanding loans of up to $250,000 each provided by domestic banks and credit unions was $27.5 billion. Throw in loans of up to $1 million, and the number climbs to $65.7 billion. The average authorized value of loans to companies with, say, five to 19 employees: about $316,000.

So, why does the negative image of the bank/small-business relationship persist? Perhaps because for that minority of instances in which a business owner disapproves of his or her bank, relations can be grim.

Earlier this year, Vancouver entrepreneur Dwayne Stewart suffered the double whammy of a post-Olympic investment hangover and anticipation of input tax credits that his customers would enjoy once the HST kicked in. Leading up to the spring, the founder and CEO of Pacific R.I.M. Services, a commercial contractor, had enjoyed a long history of $1.5 million to $2 million in profitable sales per month. In April, new sales dropped to zero. Nothing. Nada.

“Our debt-to-equity ratios went upside-down,” says Stewart. “So, we developed a plan to get out of trouble, and we executed it.” Stewart cut his workforce from 28 full-time permanent staff to just four, with 20 moving to part-time or contract status, and four more quitting without being replaced. Thankfully, says Stewart, the bank did not sever Pacific R.I.M.’s credit line. However, it did fine the firm several thousand dollars for falling outside standard debt/equity parameters, and also increased the interest rate on the company’s operating line of credit from the prime lending rate plus 1.5 percentage points to prime plus three. Since April, Pacific Rim has recorded more sales than it did in all of 2009-but the bank has yet to renew the more favourable interest rate. And, Stewart says, he has personally spent 20 hours a month since the crisis hit preparing financial reports for the bank.

But here’s where Stewart’s situation turns ugly. On Oct. 12, as part of Pacific R.I.M.’s commercial lease agreement, the company earned the right to acquire the building in which it resides for $500,000. Even though the transaction would add half a million dollars in equity to Pacific R.I.M.’s balance sheet, the bank would not extend a mortgage.

Why? According to a former manager of the bank, says Stewart, the lender is simply overextended in real estate and not interested in funding any property deals. “This destroyed my relationship with them,” says Stewart, who has raised the necessary cash from friends and family. “When you don’t need them, they want you; and when you do need them, they don’t want you,” he adds, echoing a popular refrain about the seeming fickleness of banks.

Another persistent complaint: employee turnover. It’s the only thing that bothers Marc Belaiche about his banking relationship. “I’ve been with my bank for five years, and I’ve had to work with seven or eight different [account managers],” says Belaiche, president and CEO of Inc., an online job-board operator. “If I can get one year out of them, I’m doing well.” He has worked with some account managers for as few as three months before they leave, meaning he is continually educating bankers about the workings of his business.

Despite the potential for losing an account manager in whom you’ve invested significant time, it’s critical to befriend your banker and keep him in the loop. Matthew Clancy, president of Forward Focus Recruiting Inc. in Toronto, meets with his banker every quarter to perform reconciliations of financial statements, even bringing his accountant along. “It plugs the lender into your customers,” says Clancy. “They know who’s new, who’s gone and who’s a repeat.” This allows a banker to develop a better sense of your firm’s present condition and future prospects, says Clancy: “I would encourage every business owner to do it.”

Not that it’s all wine and roses for Clancy. Since launching, Forward Focus has had a $100,000 operating line of credit that it has never touched, plus a $75,000 term loan on which just 20% remains outstanding. When Clancy asked earlier this year to double those authorizations, he was advised to prepare new numbers. But when he returned, the bank asked for something different again-three times over. And every time, says Clancy, his banker “played dumb” and blamed the underwriting department for the hassle. “No communication had ever taken place between the banker and the underwriter,” complains Clancy. “That should have been there.”

Clancy finally has received an 80% increase to his operating line and 90% to his term loan-although he had to secure it with a $25,000 GIC held by his company.

Since then, another bank has approached Clancy with an offer for his patronage, which he’s still considering. If he doesn’t make the switch, he says, “We’ll play one off the other and see what happens.” That’s a strategey that reminds business owners of another hard rule of business banking: two can play at this game.


Ask a dozen management mavens to identify the most disruptive force in business over the past 20 years, and you’re likely to hear only one answer: the Internet.

“On one hand, it creates the potential to do business with absolutely everyone out there,” says Becky Reuber, a professor of strategic management who specializes in entrepreneurship at the Toronto-based Rotman School of Management. “But on the other hand, it’s hard to do that. We don’t know a lot about how to do that. And the Internet changes all the time.”

Indeed, the Net gives every business a higher degree of access to prospective customers a mile or an ocean away. In the early days of e-commerce, countless stories were told about “accidental exporters” who’d never sold outside their local market before their website attracted an order from overseas. Today, such serendipitous sales are outnumbered by foreign competitors eating the local guy’s lunch.

“A lot of firms used to have four competitors in their local market,” says Reuber, “but because of the Internet, now they might have 400.” That makes online marketing a strategic imperative for most firms.

Therefore, says Reuber, the question is this: “How do you get people to know about you [online] in the way you want them to know about you?” She believes that smaller, founder-run businesses have a great opportunity to cut through the clutter with the “human branding” of the entrepreneur. “The really cogent stories aren’t just about the company and the brand, but have the entrepreneur wrapped up in them.” Broader PR efforts are also valuable. “By constructing stories that appeal not only to the media but to your various stakeholders,” says Reuber, “you can set up a lot of intangible barriers to entry.”

Ajay Agrawal, a professor of entrepreneurship at Rotman, sees massive disruptive power at the intersection of the Web and human capital in emerging markets. He marvels at, an online matchmaking service for the clients and providers of services such as translation and programming. Post a job requirement, and community members can bid on it. You might get one bid from Winnipeg for $24 an hour, and another from Mumbai for $4 an hour. But who’ll give you better bang for your buck? The system encourages customers to rate their supplier after every job. Over time, the Mumbai supplier might generate an approval rating equal to or better than his Winnipeg rival, at one-sixth the cost.

That the Web can give businesses access to a global pool of qualified, low-cost labour should intrigue enterprising businesspeople-and frighten anyone delivering undifferentiated services for which face-to-face contact is optional.

“In my view, it’s just the tip of the iceberg,” says Agrawal. “When that starts to happen, all bets are off, and it’s a wide-open opportunity for entrepreneurs.”

For instance, it could help busy firms cover short-term staffing gaps or cash-strapped outfits to acquire top-notch talent at bargain prices.

Still, most of the buzz in small-business technology surrounds cloud computing, primarily software (e.g., Google Apps) and infrastructure (e.g., storage and IT security) delivered over the Web. Thanks to cloud-based software, London, Ont.-based voice talent agency employs just 12 people but manages more than 107,000 customer relationships with the voice actors represented by the firm and the clients who buy its services.

At the core of the operation is, a popular Web-based customer relationship management system. As you’d expect, uses to store profiles of all its actors and clients; these profiles are robust and easily modified. “But the real value of Salesforce comes from the AppExchange, an online marketplace of applications that plug directly into your Salesforce suite,” says David Ciccarelli, CEO of “It’s as easy as adding an app to your Facebook page.”

One such plug-in integrates Google AdWords into Salesforce, allowing Ciccarelli to more easily track the effectiveness of his AdWords campaigns and such details as which ad creative a particular individual clicked on. “It allows you to have a more meaningful conversation with that prospect,” he says. Another app is Salesforce Ideas, which allows staff to submit business-improvement suggestions that get posted online and subjected to a vote; later on, people can check to see which ideas were implemented.

You’ll also be hard pressed to find office-suite software in the headquarters. Instead, staff use Google Docs for personal and shared documents. This set-up gives employees anytime, anywhere access to presentations and spreadsheets without remote-access software or VPN systems, allows for real-time collaboration and saves money. “Half of us don’t have [office-suite software], and I can’t think of a situation in which we’d need it,” says Ciccarelli. “We are much more about generating results than creating beautiful documents that end up sitting on a shelf.”

Cost containment is one of the primary attractions of cloud computing. “We’re seeing a much higher propensity among small businesses to invest in cloud-based services,” says Paul Edwards, Toronto-based director of SMB and channels research at market-research firm IDC Canada. “They see it as a panacea that allows them to get more functionality that doesn’t require up-front capital investment and staff to manage it on a monthly basis.”

After three years of operating in the cloud, Entripy Custom Clothing founder Jas Brar can’t imagine doing business any other way. Based in Oakville, Ont., his vertically integrated screen-printing and embroidery business uses NetSuite, a Web-based CRM and enteprise resource management system, in combination with custom applications built by in-house programmers. “It allows us to process five times as many orders with the same number of staff, and it increases the speed at which we do business,” says Brar.

In an industry typified by regional players, he adds, “[Entripy] can service British Columbia quicker than our competitors in Vancouver.” It also allows the firm to operate almost paperlessly. In a complete order cycle, from taking an order to packing it, shipping it, issuing an invoice and accepting payment, the company produces just one piece of paper: the shipping label that goes on the box. “Cloud computing is the future,” says Brar. “I could never go back.”

Published October 13, 2010 · PROFIT Magazine · Written by Ian Portsmouth

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