Within days of closing her yoga studio, Morgan Cowie was forced to lay off 75 per cent of her employees just to make sure she had enough cash to pay rent on her space for the next few months.
The owner of Mosaic Yoga Toronto had tried her best to get existing customers to pivot to online classes, but most chose to pause their memberships, either because they had lost income or anticipated losing income in the coming months and were taking precautionary budgeting measures.
“I get it. It’s all understandable. We’ve shifted as much as possible online to serve our few remaining customers, but that’s maybe five per cent of the revenue I used to get,” Cowie said from her studio in The Junction neighbourhood.
Tens of thousands of other small businesses across Canada are also struggling to keep afloat while facing the prospect of shutting down entirely in the wake of the COVID-19 pandemic, according to the Canadian Federation of Independent Business (CFIB), and government subsidies aren’t going to help them stay alive, say many of them.
The economic slowdown is posing a crisis of gargantuan proportions for this critical segment of the economy, one that as of early 2019 comprised roughly 1.15 million businesses, mostly in the service sector, employing approximately 10 million people.
In the days following the shutdown of most non-essential businesses across Canada, federal and provincial governments announced a slew of measures designed to help small businesses weather the storm. The benefits include tax deferrals, emergency interest-free loans and, most crucially, a 75-per-cent wage subsidy retroactive to March 15 to incent employers to retain their employees through this crisis.
The overwhelming majority of small-business owners the Post spoke to said the wage subsidy will definitely help in making sure more people have an income over the next few months, but it will not help them stay in business.
“Summer is our biggest season. If this goes on through the summer, it will be bad,” said Pouria Lotfi, who owns Café Pamenar, an institution of sorts in Toronto’s Kensington Market neighbourhood. “We obviously have no income right now and I laid off all my staff. If the subsidy continues after the shop reopens, sure, that will help me balance out the books and rehire staff. But right now, it does not make sense because there is no work in the cafe.”
A survey conducted earlier this week by the CFIB found that 32 per cent of the small businesses that have had to close are unsure if they will ever be able to open. Even in normal times, according to Business Development Bank of Canada data, only half of small businesses survive into their fifth year of operation.
“It’s absolutely true that there are loads of businesses now that have zero revenue and even if the wage subsidy was 100 per cent, the employer would still struggle because their costs are not entirely wages,” said Dan Kelly, CFIB’s chief executive.
Even if the wage subsidy was 100 per cent, the employer would still struggle because their costs are not entirely wages
Cowie’s biggest cost at the moment is rent. She has enough to cover April, but is unsure what she will do if the shutdown continues into May and beyond.
“I’m not sure, to be honest, how helpful the wage subsidy is going to be for us, because our major fixed expense and the thing that is going to make us or break us as a business is our rent,” she said.
There are currently no federal, provincial or municipal programs that mandate commercial or residential rent relief, although Ontario has said it would halt issuing new eviction orders. To date, Cowie has not been offered any kind of rent forgiveness by her landlord, although the property manager has offered her a loan with interest in the event she is unable to cover her rent going forward.
“We simply don’t have the kind of cash flow that will allow us to have a bubble payment of tens of thousands of dollars in six months, plus interest if we manage to open again,” Cowie said.
Her business is already paying back a loan that she took out to refurbish the studio space. The freeze on loan payments offered by her bank has been the single biggest financial relief since this crisis began.
Daryl Ching, managing partner at Vistance Capital Advisory, a consulting firm that specializes in advising small and medium-sized businesses, said he’s fielded calls “all day” since the federal government on Monday laid out some details on the wage subsidy program earlier.
Our major fixed expense and the thing that is going to make us or break us as a business is our rent
Businesses must have suffered “at least a 30 per cent decline in revenue” due to the pandemic to be eligible for the program, which would then enable them to claim a maximum subsidy of $847 per worker per week.
It is still unclear as to whether the subsidy will come in the form of a payroll deduction or a cheque from the government.
“As it turns out, the new program announced by the government has actually resulted in more questions than answers,” Ching said.
For example, one question he received was from a product company that sells through the retail channel and gets lumpy purchase orders from its clients.
“If you plot sales month to month on a graph, they will spike up and down,” Ching said. “How do you prove a 30 per cent reduction?”
Another one of his clients is Michael Carmichael, a small-business entrepreneur who owns four car dealerships in southwestern Ontario. He’s had to lay off 50 per cent of his employees since people started intensely abiding by social distancing measures.
Carmichael welcomes the 75-per-cent wage subsidy, because it might help him retain or hire back some key personnel who could continue doing necessary work such as managing auto-parts orders, but he’s unsure if he even qualifies for the subsidy.
“There is a 30-per-cent revenue reduction hurdle, so we are waiting to see if we qualify on that,” he said. “Ultimately, we will not bring people back until we have demand … if we have the financial capacity left over after receiving the 75 per cent subsidy, we will top up team members.”
It is also unclear if employers will have to pay the remaining 25 per cent of a worker’s salary if they opt to receive the 75-per-cent subsidy. On Monday, Prime Minister Justin Trudeau said that employers are “encouraged” to top up if they can afford to, but details had not been released as of Tuesday afternoon.
Either way, CFIB’s Kelly said it is crucial the government hand out the wage subsidy in a way that will reach employers immediately.
“We have heard from many members who have said they desperately want to be able to keep their workers, but they need the money now,” he said.
“My worry is if we lay everybody off, it will be months before we put the puzzle back together. When things open up, you don’t want workers saying they are on EI and they have enough to cover their bills so they are just going to take the summer off.”
For now, Lotfi, the owner of Café Pamenar, said the savings he had accumulated for a planned expansion should keep him and his family going for the next few months, but he will start to get seriously worried if there’s any sign the pandemic will stretch on for more than six months.
“In the short term, I appreciate the government measures, and they will help small businesses a little,” he said. “But for me, in the long term, if this goes on, I will have no choice but to close down.”
Financial Post
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