The COVID-19 pandemic has been hard for small business owners, especially those in retail and other consumer sectors who have struggled to pivot their operations from traditional bricks-and-mortar stores to digital storefronts. Small- to medium-sized businesses (SMBs) received financial assistance to help them transition to e-commerce, but despite that, many businesses still shut down or suffered extensive losses. We can do more; we can do better.

In 2020, small businesses employed 64 per cent of the total labour force in Canada. At the start of the pandemic, governments provided them with assistance such as the Ontario Small Business Support Grant and the Digital Transformation Grant program, aimed to digitize businesses by assisting in moving operations online. However, many small businesses were still forced to close their doors, and many that remain open are struggling. According to the Canadian Federation of Independent Business, the average small business in Ontario has about $190,000 in pandemic debt, and 18.5 per cent of Ontario small businesses are considering bankruptcy.

Perhaps the reason is that purchasing hardware and software wasn’t enough to let them make the transition to digital. Small business owners also need a certain digital acumen, such as understanding web design and complex integrations. This can’t be done overnight — it takes time and training. A strong Canadian economy requires us to support local SMBs both physically and virtually.

What challenges are SMBs facing?

The pandemic accelerated many challenges that SMBs had already been facing as the world of retail became increasingly digital. Firstly, establishing an e-commerce presence created novel issues for SMBs that had existing infrastructure, such as retail storefronts, that were still operational during the pandemic. Integrating the virtual and physical aspects of their stores posed fulfillment issues for businesses that did not sync their inventory records between the two. Ensuring integration with their existing point of sale terminal meant buying expensive middleware, paying a developer to integrate the two systems, and paying new, additional transaction costs.

If a major e-tailer shipping at higher volumes can offer free shipping, but a local business has to charge $30 to ship similar products, consumers will think twice about buying local.

Secondly, SMBs that make sales outside their home country have had to adhere to changing regulations or risk having their orders rejected at a port of entry. The recent trade agreement between Canada, the United States and Mexico (CUSMA) addressed this issue to Canada’s benefit. The three governments agreed to increase the minimum value that could be imported into the U.S. without duties, from US$200 to $800. Under this so-called “e-commerce provision,” sellers that want to ship directly to a consumer in the U.S. simply have to submit certain information electronically prior to shipping, such as the country of origin, retail value and importer record number.

However, certain products, regardless of value, require permits or declarations that aren’t covered by the e-commerce provision. These include products that fall under the remit of certain U.S. government agencies, such as the Department of Agriculture (USDA), Environmental Protection Agency (EPA) or the Food and Drug Administration (FDA). For example, a local jam producer in Ontario might use their new e-commerce site to sell jam to a customer in the U.S. without realizing they are also subject to FDA and USDA regulations. They could correctly leverage the CUSMA e-commerce provision, but unless they also adhere to the rest of the complex regulatory environment, they won’t be allowed to export their jam.

Finally, shipping costs remain astronomically high for last-mile delivery. E-commerce platform Shopify reports that about half of shoppers who abandon their purchase before completing the sale do so because of extra costs, including shipping and fees. If a major e-tailer shipping at higher volumes can offer free shipping, but a local business has to charge $30 to ship similar products, consumers will think twice about buying local.

How can policy-makers support SMBs?

If we genuinely want to support local, we need our governments to create mechanisms that strengthen small businesses by aggressively reducing their administrative burden, subsidizing their costs and providing hands-on support.

First, we need to create a small business hub that would act as a one-stop shop for business support. This would comprise representatives from different agencies such as the Canadian Food Inspection Agency, Canada Border Service Agency, Canada Post and trade and digital strategists, to name a few.

For example, that local jam producer probably knows that if a consumer complains about any label element on the jam jar, they could face fines from the CFIA. But if they reach out to the CFIA for assistance on label compliance, they’ll be told that the CFIA does not provide any proactive services such as reviewing labels.

Instead, a small business hub would have representatives and resources that would guide businesses in meeting regulatory compliance — such as labelling experts with in-depth knowledge of CFIA requirements who would offer label and compliance reviews, or export advisers to provide guidance on shipping requirements for jurisdictions outside of Canada. This would prevent the rejection of products and decrease the likelihood of fines and penalties through enforcement mechanisms.

A second suggestion is for Canada Post, a Crown corporation, to create a program to allow SMBs to sign up for preferred rates or shipping credits. These shipping credits could be seamlessly integrated into the checkout process for e-commerce platforms such as Shopify with just a few clicks. An approved SMB would get an allowance of $5,000 for free shipping credits, which could be tied directly to their Shopify merchant account. Now instead of a $30 shipping fee, their customer will see a $5 shipping fee or, better yet, free shipping.

Governments could also achieve a net-positive economic impact by subsidizing last-mile delivery start-ups that focus on SMBs. Subsidizing last-mile delivery is not a novel concept — for instance, the town of Innisfil, Ont., partnered with a ride-sharing company to supplement its public transit system. Last-mile partnerships and subsidies could create employment opportunities in this sector, support local businesses and reduce our carbon footprint due to enhanced co-ordination. Technology allows us to do this; we need a boost from governments.

Today’s SMBs have to take on many duties where they don’t have expertise: such as building a website, marketing, logistics, regulations, registrations and labelling. If they get it wrong, they have to hire expensive consultants and attorneys to help them navigate the system. If we create policies that reduce administrative requirements and increase supports, Canada will continue to be a leader in supporting our SMB community.

SMBs are the backbone of our economy. The onus is on our leaders to create an environment for growth as they recover from the pandemic. Our future is bright, but we must get this right.