SME | How Can You Increase Productivity in 2025?

Inflation has returned to the Bank of Canada’s target range of around 2%, and interest rates have started to fall.

The labour shortage is less acute in some sectors, but remains a challenge for many companies, particularly when it comes to skilled labour and retaining employees. Companies need to pay more attention to optimizing their existing talent.

The economy needs a boost. That is why we expect another rate cut over the next few months.

What to watch for:

The political situation in Canada and North America is evolving and will impact our economy:

• Upcoming federal elections in Canada with a possible change of government in 2025;
• Municipal elections in Québec in the fall of 2025, with a new leader in Montreal;
• The new U.S. president takes office in January 2025;
• The 2025 Québec budget is expected to include slightly higher spending combined with restrictions to achieve a balanced budget.

Competitiveness of Québec and Canadian companies

We’ll have to keep a close eye on the next U.S. administration’s decisions regarding tax cuts and incentives for companies to locate in the U.S. rather than export. Tariffs could also weaken the position of many Québec companies exporting to the U.S.

On the positive side, we expect the Canadian exchange rate to fall. The Canadian dollar is currently equivalent to around $0.75 to $1, and the actions of the next U.S. administration could reduce it further, which would benefit local companies.

Productivity

As statistics have shown for several years, the productivity gap between Canada (including Québec) and the United States is widening. In concrete terms, an hour worked in Canada produces less value than an hour worked south of the border.

We need to be aware of this gap and take action to close it, especially as our standard of living is stagnating compared to that of the United States.

Government programs such as grants and credits exist to help companies evolve and optimize their operations, but it seems that companies are not taking full advantage of them. This money is up for grabs. Make the most of it to innovate and add value to your business.

Here are some forecast statistics for 2025. All in all, they are positive in the current context.

• GDP growth rate: Roughly 1.5% in 2025.
• Inflation rate: Steady at around 2% (which will help with input costs and consumers; we are back to the pre-pandemic rate).
• Unemployment rate: Around 6%.
• Bank of Canada key rate: 3.25% (as of December 11), next announcement in January 2025.
• Exchange rate: Around $0.70 for US$1.

Financial forecasts, budget monitoring and sensitivity analyses are valuable management tools to help companies prepare for economic uncertainties.

A profile of companies in difficulty

Before the pandemic, some 2,100 insolvency files (including bankruptcies and reorganization proposals) were processed annually. After pandemic measures (subsidies and other government programs) were introduced, the number of cases processed declined to about 1,500 per year.

During 2023, the first year without these special measures, we processed almost 700 more files than in 2019. By September 2024, the number of files had reached the same level as the previous year. We’re expecting 3,600 files by the end of 2024. This amounts to a major increase.

The sectors most affected are retail trade, restaurants, construction and transport. Their main challenges are:

• Shortage of skilled labour (particularly in construction and restaurants);
• Retaining staff;
• Rising input costs (such as raw materials and freight), which have a negative impact on firm liquidity;
• Managing priority receivables (such as taxes), which is becoming more difficult;
• Tariffs (in August, for example, duties on lumber rose from 8% to 15%); however, a lower exchange rate could offset these increases.

Financial forecasts

One of the most powerful tools for better managing a business in a fluctuating environment is financial forecasting.

Unfortunately, SMEs don’t use this management tool as much as they should. Smaller companies often don’t make any financial forecasts at all, while many SMEs make projections only when applying for financial assistance.

What’s more, by comparing financial forecasts with actual figures on a monthly or even weekly basis, SMEs can perform:

• A viability analysis;
• An assessment of financial requirements over the coming months;
• A sensitivity analysis.

They can then make informed decisions preventively. These forecasts can, for example, be used to increase input costs in order to visualize which items will be hardest hit. They can then take steps to stave off possible liquidity problems.

Having a head start will help you weather any storms that arise.

Stagger a project

Forecasting should be an evolving tool, not a static one. When an organization plans a large-scale project, it sometimes wants to do everything in one shot, but it might be biting off more than it can chew in terms of its capacity to absorb and manage these changes. It may be advisable to go in stages, prioritizing what will bring a quick gain at the lowest cost.

Forecast financial requirements over the long term

From the outset, it’s important to anticipate and be proactive about possible cost variations or fluctuations when implementing a project. It could be helpful to meet with your financial partners to discuss your future needs so you can get pre-approved financing. That way, you’ll know that you can access liquidity at the right time, if a need arises.

Choosing the right financial partners

Each partner has its strengths. Some will offer more advantageous interest rates, while others will be more willing to take risks, so they will be more patient and flexible. Think about dealing with different partners to meet different needs.

A financial advisor is certainly an important partner who can fill you in on the market and explain existing programs and financial institutions’ criteria.

First of all, you need to focus on your company’s current operations to achieve short-term gains. Once your current operations are optimal, then you’ll be ready to take the next step of investment.

Take stock of the situation

Before you do anything else, you need to take a step back and think about what’s important for your business.

• What are your key services?
• What does your organization’s internal environment look like?
• What is your business’ primary mission?

Focus on what works and organize your business around what will pay off best for you as an organization.

Draw up a strategic plan

Next, a strategic plan will help you position yourself and decide on priority actions to take. For example, you could revamp your service delivery model. Take a fresh look at your company. If you do the same thing over and over again, you can’t expect different results.

Review the organizational structure

Once you’ve taken these steps, you may find it useful to review the structure of your organization. First, you need to look at the overall structure. Then assess each department (marketing, HR, purchasing, finance, etc.) and each operational sector. Is everything working optimally to achieve your new objectives?

The processes and tools used can also be tweaked to align with your new service delivery model. For example, if you track your performance in Excel files, implementing a good data optimization system could make you more efficient, which will help you make better decisions.

An operational analysis can raise a number of questions:

• Is your inventory management optimal?
• Do you produce quality? If so, at what cost?
• Are everyone’s roles and responsibilities clearly defined?
• Do you have the right people in the right places?
• What are the relevant performance indicators to track?

Working on these elements will let you know exactly where you stand and help you cut costs, reinvest in strategic areas, and ensure that every job has added value and that there is no redundancy in the actions taken within the teams.

Collect data and optimize analysis

The continuous improvement of operations and the quality of data needed to make the right decisions are increasingly important concerns for managers.

Access to reliable data is fundamental to decision-making. To avoid running your business blindly, you need to have the right data in real time. If you don’t have accurate data, you need to set up an effective management system.

Use artificial intelligence (AI)

Once you’ve digitized your data, automating your transactional processes may be a preferred solution in an evolving business context. Specifically, robotic process automation can help you:

• Reduce hours worked;
• Reduce the number and impact of errors;
• Improve processing time.

Although there has been a lot of talk about AI in the last year, human intelligence is still very valuable!

Be an employer of choice

The skilled labour shortage persists in many sectors. Immigration laws have been tightened and issues of employee retention linger. This is why it’s just as important as ever that you position yourself as an employer of choice, whatever the size of your business.

Human resources procedures need to be in place to organize recruitment, hiring, and onboarding, along with salary and telecommuting policies. To keep up to date and adapt to employees’ needs, consult your workers and listen to what they have to say.

Support change

The working world is changing at breakneck speed. AI is shaking things up and entrepreneurs need to adapt.

It’s much more profitable for an employer to keep people in place, and support them so that they can adapt to change, than to hire new staff.

Even so, you could probably benefit from reviewing your structure and clearly establishing the roles and responsibilities of each worker to align them with needs. Once the needs have been identified, you can plan training programs around meeting them and develop your workers’ full potential. This is also a good way to mobilize your staff and strengthen their sense of belonging to the company.

Preventing psychosocial risks

The Act Respecting Occupational Health and Safety has been updated. As of October 2025, employers will have to ensure that they assess the psychosocial risks of their workers, and that they include these risks in a prevention approach. These risks can affect employee health, and ultimately have a major impact on your company’s productivity.

A healthy environment, clear communication and well-defined roles have both operational and financial benefits.

In fact, there are programs available to support human resources improvement initiatives.