01-02 Small Business

It is good news to hear Dan Kelly, the President of the Canadian Federation of Independent Business (CFIB), announce successful efforts to refine government wage subsidies and guaranteed loan programs to help the maximum number of small firms and their employees survive during the Coronavirus pandemic.
The small business community is vast. From hundreds of thousands operating from homes. To new ventures financed by family and friends. To global firms with sophisticated technology.
Some stories will help us understand what is happening now, and what will happen tomorrow:
I started the CFIB in 1971, with my father guaranteeing my lease and my line of credit. And when we hit difficult times, he slipped me money to help cover my mortgage. Today, CFIB employs over 400 people.
During WW2, the federal government gave every officer in the armed services a $200 credit voucher that they could use to buy a uniform from a tailor of their choice. This measure enabled my father to shift from high end custom clothing to officers’ uniforms at the start of WW2. He could not get a bank loan.
But that was not the whole story. He had received 500 pounds from his mother in Ireland in 1938 to help launch his business. And a year later she gave him another 500 pounds to buy up all the gold braid he could find to launch his uniform business.
And today during the Coronavirus pandemic, the government of Ontario allows restaurants to deliver beer and wine to homes along with food. It’s about helping restaurants generate cash flow at a time when their in-house business has collapsed.
And again, that is not the whole story. My favourite take-out restaurant has been established for years. The owner of the business also owns his own building, and has no personal or business debt. Other restaurants with huge payables, monthly rent to pay, and zero income will close their doors permanently. They are too undercapitalized to handle the shock.
But the good news is that North America has a very entrepreneurial culture. And in normal times if 8% of all small firms disappear, they are replaced with start-ups. Today, with the virus shock to the economy, an anticipated 15% of small firms will die, despite public support. But these companies will be replaced by new ventures.
The key tax initiatives that will be used to finance new ventures will be linked to victories achieved in the 1980s. They will enable small firms to get equity from family and friends in small amounts. It’s the tax-free capital gains tax on the sale of private company shares. And the “business investment loss provision” that enables an investor to recover losses against other income taxes owed.
I raised $1.4 million from 17 people using these measures to fund an online learning business called Vubiz back in 2000. And, as it turned out, any online business is a winner during a pandemic.
Small business financing is done through what is called the non-institutional equity market. As an example, my father gave non-interest loans and gifts to family members to fund four start-ups. Nothing recorded anywhere.
Small business is about births and deaths. An entrepreneur will start about six ventures in his lifetime. It’s a scar tissue process. As an ex teacher, I defined entrepreneurship as ST/TSA = 1. ST equals scar tissue. And TSA equals total skin area.
And 2/3rds of all new ventures are started as a result of something negative. So, the pandemic will cause a lot of change. And, a lot of innovation, a lot of new companies and a lot of new jobs.
When our political leaders say that good times will return, they are right. It was small business that put half of the free world back to work after WW2.