LOONIE, FUEL STRIP WIND FROM SAILS OF SMALL BUSINESS

HIGHER COSTS LESSENING REVENUE

At North Sails Atlantic, the soaring loonie and record natural gas and oil prices are making uncertain waters for the Nova Scotia sail- maker.

“Canadian dollar savings on U.S. imports have been passed on to customers,” said North Sails owner SandyMcMillan. But the impact of rising energy prices is all negative.

“Customers don’t even ask about picking up orders any more,” he said. That means he has to absorb the escalating cost of fuel needed to drive more than 60,000 kilometres a year to customers across Atlantic Canada.

Next year, he said, the price of the sails sold by staff at the company’s stores in Halifax and Lunenburg, N.S., could rise considerably as soaring energy prices push production costs ever higher.

He’s not sure he can avoid passing on some of that to customers and fears rising costs and declining sales would be bad news for the future of his business and its six employees.

For a record number of Canadian entrepreneurs who are boosting the labour market but have to navigate their businesses through macroeconomic factors that are out of their control, the situation at North Sails is a familiar one.

According to a report from CIBC World Markets, 2.5 million Canadians have embraced small business ownership. These entrepreneurs have generated 80,000 jobs this year, and have created one-quarter of new, paid employment positions in the year ending March, 2005.

The report, which was released yesterday, says another 150,000 Canadians may attempt to set up their own businesses in the next two years, but it warns that nearly seven in 10 entrepreneurs who’ve already set up shop say the biggest challenge to keeping their businesses afloat is managing cash flow.

With almost two-thirds saying rising gas costs or the soaring loonie are having the biggest impact, all those jobs may be on the line.

The report says employment in small firms — those with fewer than 20 employees — rose by 2% in the past 18 months, compared to 1.6% for larger firms.

However, more than one-fifth of small businesses reported the dollar’s surging value has had a negative impact on their profitability, with an average drop in revenue of 18%.

The report says the impact of the high dollar on tourism and related services alone could cost the economy close to $5-billion over the next 12 months. It also says the “downside potential” of higher oil prices on the economy is probably more sizeable than any uplift for Canada’s petro-economy. Almost 66% of entrepreneurs said rising gas prices are hurting their businesses and there will likely be no relief for at least a year.

Benjamin Tal, senior analyst at CIBC and author of the report, said the recent strong employment record of small businesses would likely be reversed if those businesses fail to meet the twin challenges of a high dollar and energy prices.

The CIBC report backs up a similar outlook outlined by the Canadian Federation of Independent Businesses which recently said 20% of its members have been forced into a loss position by the spike in fuel prices this summer.