To get a sense of what the economic outlook and the subsequent recovery will look like, we really have to focus on the businesses. I understand these are difficult times and it is best to try and stay positive. However, from a financial management standpoint we must hope for the best and prepare for the worst.
Recent surveys, which I always take with a grain of salt, point to a rather grim outlook for small business. Per data from CFIB (Canadian Federation of Independent Business), a survey from over 10,000 small business across Canada suggests 6% of businesses will fail by end of May. Another 44% say they are unsure if they will survive if this persists past May, while 50% say they will be absolutely fine. These small businesses have lost an average of $203,000 and a significant portion of them are dipping into personal savings or using their credit card to stay afloat.
Remember, the economy was not designed to be shut down. Nowhere in any business model does it say you should plan for revenues to go to zero for several months. Furthermore, corporations and households where levered to record highs coming into this exogenous shock.
When revenues are slashed, this makes debt servicing very difficult. Our top three most levered sectors are Real Estate, Oil & Gas, and Construction- in that specific order. All three of which are facing significant headwinds.