As 2024 winds down, many small business owners are reflecting on their progress and planning for the year ahead. So, how are Canadian small businesses feeling about their future? Encouragingly, 84% of respondents reported being either positive, more positive, or much more positive about their business compared to the previous month. This optimism stems from three main factors:
- Increasing sales: 41% are experiencing stronger revenue.
- More work available: 40% report a rise in opportunities.
- Improved cash flow: 29% note better financial health.
These sentiments align with recent observations from the Bank of Canada that consumer spending is starting to rebound, even though GDP growth slowed in the latter half of the year. Lower inflation, which has been easing cost pressures, is also contributing to this positive outlook by improving profitability and cash flow for businesses.
Key Trends for 2025 and How to Navigate Them
While 2025 will undoubtedly bring its share of surprises, some macro trends are already shaping the business landscape. By understanding these trends, small businesses can position themselves for success. Here are three key areas to watch:
1. New Government Policies
Canada is gearing up for a federal election, which must occur before October 2025. However, the exact date remains uncertain, as it depends on the selection of a new Liberal leader and the resumption of Parliament in March 2024. At the same time, Canadian businesses are keeping a close eye on the U.S., where new policies under the Trump administration—including higher tariffs on Canadian exports—could have a significant impact.
What can you do?
Stay proactive and informed about any new policies that could affect your business. Work closely with your advisors to evaluate how these changes might impact your supply chain, workforce, and customers. By staying agile and focused on your objectives, you can capitalize on opportunities and mitigate risks.
2. Easing Cash Flow Pressures
Over the past two to three years, high inflation and rising interest rates have been a major challenge for small businesses, driving up costs, reducing customer spending, and squeezing profits. Thankfully, 2025 is expected to bring some relief as inflation stabilizes and the Bank of Canada’s rate cuts start to take effect.
Lower interest rates will benefit small businesses in two ways:
- Reduced borrowing costs make it easier to finance operations and growth.
- Increased consumer spending, as customers have more disposable income, can boost sales.
What can you do?
While four in five small businesses (80%) have yet to see the impact of recent interest rate cuts, these benefits are expected to materialize more fully in 2025. Keep a close eye on your cash flow, monitor borrowing opportunities, and be ready to meet increased customer demand as economic conditions improve.
3. Productivity and Digitalization
Canada has faced challenges in achieving productivity growth post-pandemic. Labour productivity fell 0.4% in Q3 2024, marking a decline in seven of the past eight quarters. By comparison, the U.S. has seen stronger productivity gains, highlighting a critical area for improvement in Canadian businesses.
What can you do?
Boosting productivity can help your business in multiple ways, from offering competitive pricing to attracting top talent with higher wages or increasing overall profitability. Here are some actionable steps:
- Leverage digital tools: Utilize AI-powered software to automate repetitive tasks, freeing up time for higher-value activities.
- Revaluate processes: Assess your current workflows to identify inefficiencies and implement more effective methods.
- Invest in staff training: Equip your team with the skills needed to maximize the benefits of new technologies and processes.
Looking Forward to a Successful 2025
Despite the uncertainties that every new year brings, 2025 holds plenty of opportunities for small businesses to thrive. By staying informed, adapting to changes, and embracing innovation, you can set your business up for success. Focus on your goals, work closely with your advisors, and leverage new tools and strategies to make the most of what the year has to offer. Here’s to a prosperous and productive 2025!
