Bouncing Back: How local companies are navigating future challenges

The last few years have been a rollercoaster for small-and medium-sized businesses, especially in the service industry. But hard times lead to hard study. Being lean, responsive and creative are lessons learned and will help navigate future challenges.

Bear and Joey - Douglas Jun/Jul 2020
Joe Collins, partner and founder of Avalon Accounting, services over 250 clients across Canada. He has unique insight into the rollercoaster of challenges faced by small- to medium-sized businesses. Photo By: Milen Kootnikoff.

Joe Collins launched Avalon Accounting almost eight years ago. A former Douglas 10 to Watch award winner, his business now serves roughly 250 small- to medium-sized businesses spread across Canada, so he’s got a good feel for challenges being felt by business owners. 

When COVID-19 struck, businesses had to shut down overnight, lay off staff and be without customers. Then came the need to decipher government aid programs, apply for grants or loans, pay rent, prepare to reopen and follow all the costly rules. And lately it’s been dealing with taxes like the PST and Employer Health Tax, minimum wage hikes, paid sick days, finding employees, overcoming shortages of products and watching as inflation and global conflicts coalesce to elevate the cost of everything from fuel to fish, avocados to air purifiers.

“There’s an anxiousness to get back to normal,” says Collins. “But the next year is going to be so hard to predict.”

For Daisy Orser, cofounder and owner of The Root Cellar, understanding is key. 

“They say the financial sting of this pandemic, coupled by paid sick days, paid benefits, minimum wage increases, global conflict, rising fuel costs etc., will affect many generations,” says Orser. “So please be compassionate. Your groceries are going to cost more. Everything is going to cost more. Farmers have increased costs, so wholesale prices are higher. Fuel and labour costs are up, so freight is higher.

There isn’t any ‘cost of doing business’ that isn’t increasing, so retail prices are going to be elevating. We ask consumers to be mindful of not shooting the messenger. 

“These increases are, simply put, out of our hands and coupled with the massive financial outlay of COVID risk mitigation, costs like these simply cannot be absorbed if small businesses are to remain more viable.

The outlay of costs due to pandemic regulations will never be recovered, so be gentle with us as we strive to strike the right balance between paying these costs forward and footing the bill internally.”

It Will Only Make You Stronger

When The Root Cellar opened in 2008, there were eight employees and three tills. The company has grown to several divisions, including The Chop Shop and Potting Shed, a second location and more than 170 employees. So, Orser speaks for Greater Victoria businesses when she riffs on the adage, what doesn’t kill you makes you stronger. 

“We learned a lot about our resilience, the power of a strong team, the benefits of transparency, the agility that we were able to have with our response times as a small business and what a benefit this is. Yes, we would skip the pandemic, if we could go back in time, but we have learned many valuable lessons, gained many valuable insights into our operations and are a far healthier, stronger and more nimble business than we were before.”

At Bear & Joey restaurant, founder Peter Wood opened just before the pandemic hit. When asked how he would describe his restaurant’s survival over the last couple of years, Wood calls it “triage.” To stem the flow, Wood trimmed his roster and reduced menu offerings. He worked hard to treat his staff well, especially since they, at times, had to deal with surly customers, faced greater odds of getting ill and confronted a merry-go-round of rules. 

Bear and Joey - Douglas Jun/Jul 2020
The rising price of ingredients and staff will have a significant impact on restaurants, says Bear & Joey owner Peter Wood, who will be expanding his offerings with a new range of exfoliating scrubs, including one made from coffee grounds.

“It was a state of reaction, not proaction,” says Wood. 

The ability to provide take-out and add about 20 patio seats to Bear & Joey’s inside spots were saving graces. 

Still, food and fuel costs remain a worry. 

“We need to be hypervigilant,” Wood says. 

One key ingredient can substantially drive up the cost of a dish or cheaper substitutions may occur. If prices rise by 15 or 20 per cent, customers will seek cheaper fare. And as the price of ingredients and staff costs surge, Wood predicts restaurants will have fewer seats, thus lowering overhead costs.

But Wood admits that over the last 2.5 years, he’s become good at letting go of things he cannot control. It resulted in time to focus on certain aspects. 

“I’ve never stared at a profit-and-loss statement so intently,” says Woods. “We’ve had to be creative, analyze every dollar spent with great detail. We also had time to plan, refine our operations.”

With deep financial insight and spare hours, Wood has hewn a new branch at Bear & Joey, with potential to be called Bare & Joy. 

“We’re making a coffee scrub,” says Wood. 

The exfoliating scrub contains coffee grounds, organic coconut oil, brown sugar, organic orange essence, Vitamin E and sea salt. With big hopes, he’s ordered 15,000 packing bags from China, which he plans to fill with the yummy-smelling product.

Wood’s pandemic pivot is the start of a growing cosmetics line. Currently, three body scrubs are in the works, a salt scrub is in the development stage and two soaps will make waves.

Another Victoria business has used the pandemic pause to re-evaluate her business. Melodie Reynolds is the founder and CEO of Eluma Beauty Inc. In November, her company acquired Victoria-based Miiko Skin Co. which it recently rebranded as Foster Skin Care. 

“My job is to keep the company running,” says Reynolds. 

The root cellar - Douglas Magazine Jun/Jul 2022
The Root Cellar’s cofounder Daisy Orser is connected with hundreds of food producers to stock her two Victoria locations. That varied network provides some resilience to supply chain issues while giving her direct insight into the increased costs faced by farmers.

Current Pressures

When the pandemic started, all of Reynolds’s sales staff were on contract. Because salons and spas were closed, they lost customers. The Canada Emergency Wage Subsidy (CEWS) allowed Reynolds to bring the four salespeople in-house where they worked on interim sales and became the support team for business clients. 

“One day, this will all be over, and they’ll (clients) remember we’re the company that cared for them,” says Reynolds. 

But, in October, the CEWS disappeared, so the employees returned to contract sales. While online sales of her sustainable and low-waste beauty products were stable during the pandemic, growth was elusive. 

“But expenses went through the roof,” says Reynolds.

Current pressures include the rising minimum wage and the requirement of providing five paid sick days for employees. Reynolds has already given her 18 employees five paid illness days. She worries that with a provincial mandate of five, her employees may expect five more, for a total of 10. 

It’s the same dilemma with the minimum wage, which on June 1, 2022, will increase from $15.20 per hour to $15.65 per hour. 

“For me, it was always important to pay a living wage,” says Reynolds. 

Reynolds pays around $20 per hour, but with the minimum wage bump, it means her pay scales will have to rise in step. And with that, there is the incremental rise in taxes and benefit payments.

The provincial government’s policy of five paid sick days for all B.C. workers started January 1. It was a “gut punch” to small businesses who continued to reel from the pandemic, says Collins. 

“The way the government announced it, it was as if they were paying [for] it,” says Collins. “It was perfect in their playbook — a policy that costs them nothing but wins favour with the public.” 

Wood agrees: “I genuinely thought it was a government-funded initiative.”

B.C.’s Labour minister Harry Bains instead touts that B.C. is the first province in Canada to have five paid sick days. 

“There is a modest cost, no doubt,” admits Bains. 

But as COVID-19 revealed, sick workers torpedo productivity. He pointed to the 60,000 responses given to the government from small-to-large employers. They all agreed that lack of paid sick days forces people to go to work when ill and thus spread sickness to coworkers. 

As for why five days per year and not 10, as the federal government is proposing for federal workers, Bains said that irregardless of how many paid sick days are available, the average taken by a worker is 4.5 days. 

“When we came up with five days, we did our research,” says Bains.

Related to sick days is the requirement that employers pay the Employer Health Tax, which adds a notable amount to payroll expenses. 

“The health tax, the sick days, make it incredibly hard for small businesses,” says Reynolds.

Eluma Beauty - Douglas Magazine Jun/Jul 2022
For Melodie Reynolds, the CEWS enabled Eluma Beauty to bring four salespeople in-house. The wage subsidy disappeared, as other expenses began to rise, and those new employees returned to contract sales. Photo By: Jeffrey Bosdet.

Reality Bites

B.C.’s minister of Jobs, Economic Recovery and Innovation grew up in a household that ran a business. 

“Running a small business is always challenging,” says Ravi Kahlon, whose family owned a Victoria cafe. “I know it’s been hard.”

While acknowledging the pandemic misery, Kahlon says the B.C. government provided $1.5-billion in funding for business, individuals and communities. As part of that, there was $85-million for 5,300 Vancouver Island and coastal businesses.

Government worked with the BC Chamber of Commerce to identify how best to direct the money, Kahlon says. The B.C. government also worked with the federal government to ensure no businesses were overlooked. Where the feds gave loans, B.C. supplied grants: Small- and Medium-Sized Business Recovery, Circuit Breaker Business Relief and COVID-19 Closure Relief. 

“I believe it was complementary,” Kahlon says.

Before the pandemic, about 7,000 B.C. businesses closed in an average month, but that was offset by new business openings or reactivation, according to the Small Business Profile 2021. In 2020, the average net loss was roughly 180 businesses per month. 

As the virus waxed and waned, in early 2021, there was a net increase of 730 new businesses per month. Keep in mind that in B.C., 37 per cent of businesses have fewer than 50 employees; two per cent have more than 50; and the remaining 61 per cent are businesses with no paid help, with a single, self-employed owner. Most small businesses, about 80 per cent, are in the service sector, one of the hardest hit sectors.

The Brass Tacks of Taxes

To keep her business from succumbing to COVID-19, the founder and director of KWENCH put her creative skills on full throttle.

Tessa McLoughlin opened KWENCH, a 25,000-square-foot coworking space on Store Street, in October 2019. 

“We were only open five months and then had to lock down,” says McLaughlin. 

Almost instantly, she suffered a 70 per cent loss in revenue after weddings, workshops and conferences became illegal. To survive, KWENCH became really lean, really quickly. Fortunately, about three-quarters of KWENCH’s monthly members maintained their memberships. 

But a small business runs with very tight margins, McLoughlin says. An August 2021 audit by the B.C. government tightened the noose. Initially told the books were fine, the government came back and said it was owed $15,000. The tax, that should have been self-declared, was for furniture the company purchased on Amazon from an Alberta seller. 

“It could not have come at a worse time,” McLoughlin says. “Why are you auditing a service business that just came through two years of pandemic?”  

McLoughlin told the officials she couldn’t pay it all at once but could do so over six months. In March, the confidence-and-supply deal between the federal Liberals and the NDP revived a Liberal promise to impose a three percent surtax on financial institutions.

Unlike the big banks and Amazon, small and medium-sized businesses have seen their savings evaporate. And debt limits have been reached. 

Victoria MP Laurel Collins says her party is pushing for the surtax to be extended to oil and gas companies and big box retailers because of the huge profits they’ve made over the past few years. She maintains it’s vital that the federal government provide assistance to small businesses. 

“The government kept giving signals they would give support.” says Collins. “We’re now moving into year three. Businesses still need support.”

Focusing on the Future

As for the future, who could have predicted the next 2.5 years in January 2020? 

“We’re not out of the woods yet,” says McLoughlin. “I think there’s going to be some very dramatic effects on small businesses. But small businesses are the ones who innovate, the ones who try new things.”

Over seven years ago, Reynolds bought a lipstick, and it was enveloped in so much packaging, Reynolds’s displeasure spurred her to create Elate Cosmetics. During the last two years, she’s been focussed on keeping her valued staff healthy and balanced. Now the spotlight is on her vision: “Having a world without single-use packaging. Focus not on getting customers to buy more, but get more people to buy our products.”

Reynolds’s message is mirrored by Orser. 

“We have always been firm believers that consumers will only ever care more and more about what they’re putting in their bodies, who provided it, who grew it and by what means it got to their table,” says Orser. “The pandemic shone a spotlight on consumer priorities, and we are seeing a massive elevation in awareness regarding food dollars and the power that each consumer has in their hands. These are lessons that people tend not to forget.” ′