The Rise Of Canadian Business Bankruptcies: Why Is It Happening?

Shira Smolko

Businesses worldwide are finding their feet in a new post-pandemic era of operations. Many corners of the globe are also battling inflation, attributed to more unease amongst businesses – small businesses and startups in particular. In Canada, the situation is no different. In the first quarter of 2022, 807 companies filed for bankruptcy, up from 603 during the same period in 2021.

Below, we’ll look at why more businesses are filing for bankruptcy in Canada, how to prevent it, and what it means for startups and small companies.

The Rise In Bankruptcies

The increase in filings for bankruptcies is the biggest in Canada in the last 31 years. The statistics for starting a successful business were already on the bleaker side, with over 65% of brands failing within ten years of trading.

The recent spike in insolvencies stems from the rise in inflation and interest rates as economies around the globe battle the after-effects of the pandemic. Couple that with the common roadblocks companies face that lead to the ultimate end of the road – like market saturation, poor business strategies, and lack of general funding – and it’s easy to see why insolvency rates are high.

To put that into numbers and what it means for businesses, more than 70% of goods and services tracked by Statistics Canada increase by more than 2%. Prices may be rising on the shop floor, but they’re also rising behind closed doors.

Smart Ways To Stay Afloat

All is not lost, and successful smaller businesses and startups often think outside the box to make financial preservation and management easier. For example, virtual cards prevent fraud and abuse and allow companies to closely monitor expenditures in real-time and on the go. Gone are the days of confusing paper trails – financial data is a click of a button away.

Experts also recommend looking for investments that act as a hedge against inflation. Property is top of the list of smart investments – although the property market itself is volatile. Small businesses without the funds to purchase real estate can look at Real Estate Investment Trusts that can provide companies additional income through leases and rent.

What It Means For Startups And Small Businesses

Startups and small businesses are at a general disadvantage because the pocket of cash to support business operations is generally lower. However, the latest figures show that inflation rates across the US are beginning to stabilize, indicating the same could soon happen in Canada.

Struggling brands can adopt the smart tips mentioned above, find investors, branch out into new markets, and consider digital and virtual applications that cut costs – like trading exclusively online.

There are likely to be many twists and turns in the recovery of the global economy, with brands worldwide feeling the ripple effects. In Canada, there is little sign of stabilization or even a decline in inflation rates – the latest figures show the cost of living, in general, is continuing to rise and affecting businesses and consumers alike.

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