SaltWire's Ask a Journalist: You have questions, let's find some ...
What you need to know about COVID-19: May 25
The latest on Nova Scotia's mass shooting
Visit SaltWire.com for more of the stories you want.
The latest weather columns and browse beautiful photos from Cindy Day
SaltWire's cartoonists bring heart and humour to the news.
NOW Atlantic: Smart thinking for a changing world
Justine (right) and Kendall Barber, founders of shoe shop Poppy Barley Inc.
UpAuto is a car dealership with four locations across Ontario.
Imprint Marketing is a boutique digital marketing agency in Toronto.
Federal and provincial governments have introduced a slew of benefits they hope will help financially tide businesses over in the short run as the wrath of coronavirus-induced shutdowns takes its toll. Perhaps the biggest benefit so far is the Canada Emergency Wage Subsidy program introduced earlier this week, a 75-per-cent subsidy that entitles employers to claim up to $847 per week per employee. The Financial Post spoke to three business owners across the country about what the measures mean for the survival of their businesses.
Business name: Poppy Barley Inc.
Owners: Justine and Kendall Barber
Edmonton and Calgary
Number of employees: The retail chain had about 50 employees prior to the coronavirus crisis. But after closing both its stores on March 18, the owners were forced to reduce staff to about 14 people through layoffs and attrition.
Poppy Barley sells ethically sourced shoes, bags and accessories. It was founded in 2012 by Justine and Kendall Barber, initially as an online-only store. In 2017, it opened its first retail location in Edmonton and then a second in Calgary two years later.
How COVID-19 has affected revenue: Justine Barber said her company had strong sales in the first two weeks of March, but sales then “fell off a cliff,” plunging 90 per cent. “Sales are not a sustainable long-term strategy, but it will be a key part of our short-term strategy,” she said.
How it will benefit from the 75-per-cent wage subsidy: The company will not initially qualify for the subsidy just yet, because the government has said only businesses whose year-over-year revenue for March declines 30 per cent are eligible. “In March 2019, we only had one store, so our revenue was actually roughly the same as March 2020, when we had two stores and had a really good first two weeks,” Barber said. “But we will qualify come April.” She said the subsidy will help tremendously in retaining the remaining 14 employees, who are technology, marketing and product professionals.
How it will benefit from other provincial measures to help businesses, particularly tax deferrals: The Workers’ Compensation Board’s premium deferrals — what employers pay to insure their employees against workplace injuries or illnesses — are particularly helpful, Barber said, because they extend into 2021, by which time she hopes there will be a recovery.
How it will benefit from the Business Availability Credit Program. Poppy Barley could qualify for a loan from Business Development Canada (which, along with Export Development Canada, administers the program that gives interest-free loans up to $40,000), but Barber said it doesn’t quite make sense because they would have to personally guarantee the loan. “Yes, we could likely borrow money on good terms from BDC, but we’d put our houses on the line to do it, and then have to turn most of it over to our landlords, so it does not seem like a fair option,” she said, adding that rent remains the biggest challenge.
How long will it be able to survive an economic shutdown?
Barber said she has “no idea,” since survival depends on too many variable factors, such as online demand, the strength and costs of their supply chain and whether postal services slow even further. For now, she is just grateful the wage subsidy will substantially offset her costs for the next two to three months.
* * *
Business name: UpAuto
Location: Stratford and St. Marys, Ont.
Owner: Michael Carmichael
Number of employees:
UpAuto had 50 employees, but has since let go more than half its staff due to the current downturn.
Brief history: UpAuto is a car dealership with four locations across Ontario. Carmichael said his first-ever dealership, St. Marys Buick GMC, has been in operation since the 1950s. In 1992, he opened Stratford Subaru, and then Stratford Nissan opened in 2015. “Cargo Auto, my preowned business opened its doors officially on March 1, 2020. Not the best timing in hindsight,” he said.
Our total decline occurred after Monday, March 16
How COVID-19 has affected revenue: Revenue was down 15 per cent in March 2020 compared to February, although revenue had been trending up by 10 per cent as of March 15, Carmichael said. “Our total decline occurred after Monday, March 16. It is critical to note that February is the lowest revenue month in the year for car dealerships,” he said.
How it will benefit from the 75 per cent wage subsidy:
UpAuto qualifies because its year-over-year revenue in March plummeted by 38 per cent. In the last two weeks of March, Carmichael said his revenue was down by 50 to 60 per cent. The subsidy will offset the losses his company is carrying in employing the remaining workers, he said. But despite the subsidy, he does not intend to rehire the other workers. “We used to sell 20 cars a week per store. Right now we are doing three,” he said. “It doesn’t make sense to bring them back and have them sit around. That would create a toxic culture.”
How it will benefit from other provincial measures to help businesses, particularly tax deferrals:
It all comes down to cash flow: “These deferrals help ensure we have the cash flow while business has fallen off so much. Our biggest costs right now are to finance companies to carry our inventory, our facility rent and taxes,” Carmichael said. “So while it helps, it is critical to recognize that it’s not until the economy comes back to pre-COVID levels that we will be able to truly assess our biggest costs.”
How it will benefit from the Business Availability Credit Program: Given how much UpAuto’s revenue has dropped since mid-March, Carmichael said it is highly likely it will apply for loans. Currently, his parts and mechanical services division is helping to cover a portion of fixed costs such as rent and utilities since new and used vehicle sales are close to zero. Again, he said, it all comes back to cash flow. He would need to look at the company’s cash demands over the next three to 12 months before deciding whether to seek help in the form of the interest-free loan.
How long will it be able to survive an economic shutdown? UpAuto is not in a major city so its cash burn rate is lower, Carmichael said. He estimates the business will be able to survive for the next two to three months. “I think the question should be: what decision do you make in two to three months if nothing changes? How deep do you dig yourself in?”
* * *
Business name: Imprint Marketing
Owner: Halcyon Tan
Number of employees: Imprint employed 10 people, but has laid off three people so far. It is hoping to retain the remaining employees.
Brief history: Imprint Marketing is a boutique digital marketing agency that helps create and design digital ad and social media campaigns, and it also offers web-based solutions for companies. Founded in 2011, Tan started the business out of her home with her brother and another junior designer.
How COVID-19 has affected revenue:
Imprint’s revenue has dropped by 40 to 50 per cent since mid-March, Tan said. “In times of crisis, companies cut their marketing budgets first, so we saw our existing clients start backing away pretty quickly,” she said. “We have a few projects still lined up, but it’s hard not knowing who is going to pull out in the weeks ahead if this drags on.”
How it will benefit from the 75-per-cent wage subsidy:
Imprint will qualify for the subsidy, Tan said, and she hopes to hire back the three laid-off employees while retaining the remaining seven employees since the benefit would alleviate roughly 50 per cent of Imprint’s overall costs. “My concern about this is there’s still a lot of vagueness on how we will be able to receive the subsidy,” she said.
How it will benefit from other provincial measures to help businesses, particularly tax deferrals: It will help, but only marginally, Tan said, adding that besides payroll, her biggest expense is rent.
How it will benefit from the Business Availability Credit Program: Tan said Imprint would probably qualify for a loan from BDC, but she only wants to borrow if absolutely needed. “We hope that we don’t have to utilize it just yet,” she said. “It’s a security blanket that is there, and that’s great, but we have always relied on keeping things as liquid as possible.”
How long will it be able to survive and economic shutdown? With clients withholding projects and stopping their spending, Tan is worried. “We have some savings and investments, but we are looking at just three months. That could change, because three months could become just 1.5 months if another client pulls out,” she said. Tan does not want to have to permanently close Imprint, but she said it might be wiser to temporarily shut down if the situation continues and wait until things return to normal.
Copyright Postmedia Network Inc., 2020