2 0 11 Manulife Financial Small Business Research Report 2 011 Manulife Financial Small Business Research Report 3 Opportunity Knocks 4 Methodology and Executive Summary 5 Professional Support Network 8 Increased Employee Productivity and Focus 11 Top Talent Retention 14 Controlling Costs 17 Access to Capital 20 Growing Revenue 23 Advisory Board About Manulife Financial Manulife Financial is a leading Canadianbased financial services group operating in 22 countries and territories worldwide. For more than 120 years, clients worldwide have looked to Manulife for strong, reliable, trustworthy and forward-thinking solutions for their most significant financial decisions. Our international network of employees, agents and distribution partners offers financial protection and wealth management products and services to millions of clients around the world. We provide asset management services to institutional customers worldwide as well as reinsurance solutions, specializing in life and property and casualty retrocession. Funds under management by Manulife Financial and its subsidiaries were $478 billion (US$492 billion) as at March 31, 2011. The Company operates as Manulife Financial in Canada and Asia and primarily as John Hancock in the United States. Manulife Financial Corporation trades as ‘MFC’ on the TSX, NYSE and PSE, and under ‘945’ on the SEHK. Manulife Financial can be found on the Internet at www.manulife.com. FOREWORD 3 FOREWoRD Opportunity Knocks I ’m always fascinated when I get a chance to speak with the small business owners I encounter in my day-to-day life. Whether it’s the firm that keeps my air conditioner running on those hot summer days or my favourite restaurant where my family celebrates special occasions, each business owner has his or her own story to tell. In our first Manulife Financial survey of small business owners, we wanted to hear those stories. We asked small business owners to tell us what’s on their minds, what their challenges and priorities are and how financial planning—and financial advisors—can help them achieve their goals. What we learned is that owners aren’t thinking about their overall financial plans. Instead, they’re focused on paying their bills, while wondering how to find good employees, and at the same time trying to win customers, increase sales and grow profits. Small business owners might not spend a lot of time thinking about the art of financial planning— they’re too busy running their companies—but they certainly do worry about their financial future. So they spend a lot of time on tasks and goals that you, as an advisor, can help make easier, more effective and more achievable. In our first annual Manulife Financial Small Business Research Report, you will learn about the topics on the minds of small business owners, and you’ll discover ways to help solve the puzzles they face each day. We’ve grouped these under six main themes: professional support network, employee productivity, top talent retention, controlling costs, access to capital and growing revenue. After conducting the research, we asked a panel of your peers to interpret the results. In this report, you’ll find their ideas and suggestions about new ways for you to apply your expertise and to turn small business owners into small business customers. By targeting the six areas of interest, I believe your skills and advice will be more relevant, powerful and valued by your clients (small business owners). And Manulife Financial is here to help make that possible. To begin, I invite you to explore the information layered between the covers of the first edition of our annual Manulife Financial Small Business Research Report. Enjoy it, take some time to dig into the report and come back often for more. I think you’ll discover many useful insights on the pages that follow. Be sure to visit smallbizadvisorweek.ca to explore the other useful tools that have come out of this research to help you better serve the small business market. Enjoy. Rick Brunet Executive vice-president, Group Manulife Financial 4 Manulife Financial Small Business Research Report Executive summary Approximately nine in 10 companies in Canada are defined as small businesses. And despite the wide range of products and services they offer, they all share common challenges and opportunities. Small business owners Methodology The Manulife Financial Small Business Research Report is based on the results of an online survey of 1,005 Canadian small business owners and senior managers across industry sectors and regions. The research was conducted by the Rogers Connect Market Research group of Rogers Publishing Ltd., on behalf of Manulife Financial. The survey was fielded in June 2011. For the purpose of this research, “small business” was defined as having between two and 100 employees. The margin of error is ±3.1%, 19 times out of 20. The following charts provide some of the key demographics of the respondents. Note that some response categories in this report do not add up to 100% due either to the rounding of numbers or questions that allowed respondents to provide multiple responses. Base: All respondents; N =1005 rely heavily on their employees to remain competitive. However, to ensure their Organization size businesses are sustainable British Columbia they need to balance this investment in a healthy and productive workforce with strategies that contain costs and grow revenue. The 2011 Manulife 16% 21–50 employees 16% 11–20 employees Location 2–10 employees 53% Alberta 14% Quebec 22% Ontario 22% 34% Financial Small Business Research Report explores how small business owners 51–100 employees: 9% Average number: 19.0 Atlantic Canada: 7% Manitoba/Saskatchewan: 7% are managing their workforce and day-to-day activities, while envisioning ways to grow their companies for Number of years in business Position long-term viability. Less than 10 years 23% Controlling ownership 51% Equal partnership 21% Minority ownership: 8% Senior management role without any ownership: 20% Ownership stake (NET): 80% 25–49 years 26% 10–24 years 32% 50 years +: 7% No answer: 12% Average: 22.7 Professional Support Network 5 SECTION ONE Professional Support Network S mall business is vital to the Canadian economy, and owners are always looking to build their companies. With tight resources and fewer employees, many owners find the day-to-day issues of running a business a cause for concern. The survey data showed that 36% of respondents believe not being able to spend time on big-picture planning is a problem. And of those, 85% are looking for help. So where are owners finding this support? The data revealed that owners look to a variety of sources for help. Topping the list is outside consultants (10%), followed by accountants (6%) and internal company resources (6%). Within this network, it seems there is a great opportunity for group benefits and financial advisors to position themselves as a key resource for small business owners. But it’s not that straight forward, as almost six in 10 (59%) of the small business owners surveyed disagree that they would like an outside consultant in a quarterback-type role. Michael Horne, a partner in the Carleton Financial Group in Ottawa, believes this is valuable insight for benefits advisors. “I think a lot 6 Manulife Financial Small Business Research Report TOP TIPS T ell your clients about the contacts in your network and offer to set up meetings. Identify respected accountants and lawyers in the industries your small business owners are in and ask to meet with them. ffer lunch-andO learns on health benefits and pension and retirement issues for professionals in your business owners’ markets. Identify what additional value you can provide and communicate this to your clients. evelop service D offerings and make sure your clients are aware of everything your company provides through newsletters, mail outs, presentation add-ons and takehome handouts. ecome familiar B with business planning and HR issues and resources so you can provide insight when your clients need it. of financial advisors hold themselves out as that quarterback, so it’s surprising to see that so many owners are not interested in [having advisors in] that role,” he says. Gad Attias, president of Groupe Censeo Inc. in Laval, Que., is less surprised. “It’s always the president or the owner who quarterbacks these kinds of organizations because [the companies] are often not big enough to have specialized job titles. The owner usually ends up controlling pretty much all of the decisions,” he says. According to Roger d’Eschambault, president of dElta Benefits Inc. in Saint-Lambert, Que., business owners are unaware of all the ways a benefits advisor can help. “I think the advisor has a much bigger role in the overall cost of doing business than owners may even recognize,” he explains. “I think there is a perceptual issue here; perhaps business owners are not placing as much value as they could be on their financial advisor.” Selling a Service To help change this perception and open the door to further opportunity, Joel Rose, principal of usefulideas in Toronto, challenges benefits advisors to move from a business model built on just selling product to a more holistic service. “We often used to only sell product. And while we know a lot about that product, we were not saying ‘can I help you with anything else?’ Now we do,” he explains. Depending on an advisor’s area of expertise, this could be HR, business planning or risk management help. This makes sense, especially when you consider that 60% of the survey respondents say they use personal references when looking for outside consultants, and 49% rely on word of mouth when searching for help. It appears owners want a reliable contact to put them in touch with trusted people. In this environment, Attias sees opportunity. “Owners need extra help from someone like an advisor. The advisor can act as the source of references for financial questions, for human resources questions, for other questions that owners may have.” Attias encourages benefits advisors to develop a network of contacts to support this type of role. He also suggests they develop a broad set of tools—such as business FIGURE 1 Running a business is a lot more involved than I had originally anticipated Total disagree 31% Total agree 67% No answer 2% INTENSITY OF VIEW Strongly Agree: 29% Strongly Disagree: 9% Base: All respondents; N=1005 planning and HR resources—to be ready to guide the owner through challenging situations. To help position himself as a knowledge hub while building a strong network, Michael Wortsman, associate broker with Creative Planning Financial Group in Toronto, actively cultivates relationships with accountants and lawyers. “Providing a lunch-and-learn session for a group of accountants, for example, is a great way to explain to them how group benefits costs can be controlled, because that’s generally their mandate with their clients,” he explains. A seminar on the Income Tax Act as it relates to health benefits is another good topic, Wortsman says. “Identify the things they’re not intimately familiar with, but are part of their business, and share your knowledge.” Relationship Building Selling on relationship, not price, is certainly working for benefits advisors such as Sam Bruno, financial services manager of Simmons, Black & Emsland Insurance Services in Kamloops, B.C. Many of his small group clients with five to 10 employees turn to him for far more than simply negotiating a better price at renewal time. By broadening his offerings, he delivers superior service to his clients—and secures more business in the process. “Not only Professional Support Network FIGURE 2 How did you locate the outside consultants or services that you currently use? Personal references 60% 49% Word of mouth 46% Professional references 22% Industry association Industry conferences and events 13% Internet search 13% Boards of Trade/Chambers of Commerce 11% Government agencies 5% Hard copy directory (e.g., Yellow Pages) 4% Social media (e.g., LinkedIn; Facebook) 4% Note: Responses less than 2% not shown Base: All respondents; N=1005 0 do we have their commercial insurance, we also get their other [business], such as auto plan insurance. They look to us as their main point for many issues,” he explains. For benefits advisors who are unable to provide services such as administration, it all comes back to having a strong reference ready to offer an owner support in times of need. Attias embraces this approach, especially when it comes to guiding clients in key areas 10 20 30 % 40 50 60 such as HR costs and employee productivity. For example, take an owner who may be struggling with stressed employees. In addition to recommending that the owner look into a service such as an employee assistance program (EAP), a benefits advisor may also suggest experts who offer workplace seminars focused on relieving stress. “The owner will see the advisor as more important if he or she can provide constructive help,” Attias says. BENEFITS ADVISOR PROFILE Teaching clients about your expertise A few years ago, Joel Rose, principal of usefulideas in Toronto, discovered something disappointing. “We surveyed our clients and we learned that they trusted us but didn’t want to do anything besides benefits with us,” he recalls. He realized it was because clients didn’t know what else Rose’s team could provide. “So, we added to the back of our benefits presentation all of the other things that we offered, and we made sure that these were presented at every renewal and at the end of every one of our initial presentations to clients.” A few years passed before clients started asking about those services, but once they did, business took off quickly. The lesson for Rose? Recognize your growth opportunities and assert yourself. Joel Rose Principal usefulideas 7 8 Manulife Financial Small Business Research Report SECTION TWO Increased Employee Productivity and Focus E mployees are the lifeblood of every small business. When they are productive and focused they are likely to be contributing even more to the success of the company. In the survey, 97% of respondents agreed that satisfied employees are more productive. The goal for a benefits advisor, then, is to guide and support the owner in creating a positive workplace for employees. But, even though owners want happy, productive employees, cost containment is a reality. In the survey, 58% of respondents said they provide a health benefits plan. Out of those who do not, 78% support providing a plan, but believe them to be too expensive. Further, when asked directly why they did not offer a plan, the number one response was cost (64%). These are the areas where a benefits advisor can step in to connect the dots for an owner. For example, it appears that offering a health benefits plan or retirement plan might make employees work harder for a company. The survey showed that among those respondents who offer a health benefits plan, 80% feel taking care of employees makes them work harder for the company, compared to 70% for those who do not offer benefits. A similar trend exists when it comes to retirement plans. Four in five (82%) of those who offer a retirement plan feel employees work harder for the company compared to 74% of those who don’t offer a plan. Increased Employee Productivity and Focus FIGURE 3 Which of the following most closely represents your viewpoint? Taking care of my employees makes them work harder for the company 76% Neutral 17% Employees are just looking for the best personal deal they can get 6% Base: All respondents; N=1005 Herb Goedecke, president and CEO of Aero Corporate Benefits in Waterloo, Ont., says a benefits advisor should first address the idea that plans are too expensive. “There is an almost irrational concern that benefits plans are too costly. You can demonstrate rather easily that a plan is affordable, especially if it’s a percentage of payroll,” he says. “Business owners are surprised they can do it for less than 5%.” Where benefits advisors become crucial is in helping owners maintain that threshold through good benefits plan design and cost containment. “There is the fear that benefits plans are affordable now but that costs will spiral in the future. We need to continually demonstrate to owners our ability to keep these costs under control,” Goedecke explains. Once cost is directly addressed, benefits advisors can move into conversations that clarify the indirect impact of benefits plans on employee satisfaction and costs. “There is often no link between the benefits plan and satisfied employees for the owner,” d’Eschambault says, adding that elements of benefit plans, such as EAPs, short-term disability (STD) and stress management programs, are all valuable ways to demonstrate to employers how they can increase employee satisfaction and, in turn, boost productivity. Connecting directly with employees is an underutilized tool for demonstrating the connection between satisfaction and the benefits plan. After all, says Wortsman, communication is the crucial part of explaining the value of benefits and, benefits advisors should communicate directly with employees. “It’s up to us to offer to do employee presentations at least once a year for our clients,” he says. “Every time I do one, at the end of the presentation, 80% of the people who are there are excited about some element that they didn’t even know existed before the presentation.” When an employer sees this effect on employees, the cost conversation becomes more negotiable, Wortsman says. Wortsman also suggests that a similar creative approach can be used for STD, too. “For a company with under 100 lives, a short-term disability plan can be very expensive. Connecting a company with a short-term disability claims management provider that will handle things on a case-by-case basis is a great solution,” he says. Using an external provider can help to control costs while allowing an employer to formalize STD and be prepared before an employee gets seriously ill. According to d’Eschambault, employee meetings are also a good practice at renewal time. “We’ve been meeting with employers and employee groups to discuss renewals and we have been thanked because they finally understand how rates are calculated, even if it sometimes means an increase,” he says. Wortsman has had a similar experience. “We had a renewal meeting with employees for the first time this year and we showed them their health trends and how their premiums have fluctuated,” he says. “Everyone was excited; it was the first time that they had been presented with their own group’s health claims data. From there, we discussed what their employer had done and the work we have done to control costs.” A benefits advisor should also meet with his clients—without their employees—more often than just at renewal time. Attias sees his clients periodically throughout the year. “Outside of the renewal process clients are laid-back and 9 TOP TIPS each out directly to R employees about benefits plans at the launch of a plan, once during the year and at renewal time. T alk to business owners about the prevalence of stress in the workplace and its negative impact on employees. P romote features in the existing plan that can be used to help employees manage stress. These types of programs are often embedded in the benefits plan but aren’t used to their full extent due to lack of awareness. evelop a stress D resource kit for owners that includes tips on recognizing signs of stress and what can help stressed employees. Be sure to highlight what elements of their individual plans can be used to cope with stress. ollect case studies C of small businesses that have added benefits plans while saving money and boosting productivity. Refer to them in meetings with potential clients and forward the case studies to clients who are considering increases or cuts to their plans to demonstrate the value of a benefits plan. 10 Manulife Financial Small Business Research Report FIGURE 4 How much of a problem is the stress level of your employees for you and your company? Problem 12% Not a problem 54% Base: All respondents; N=1005 Neutral 30% No answer 3% sometimes much more open to listen and explore options,” he says. “The client has time to think about your suggestions, and if he wants to talk about strategy, ideas or documentation, there is a chance. Then, when we come to renewal time, both the advisor and the client are prepared and the renewal is a much easier process. It’s definitely a key point to maintain communication with the client and make sure that you give him the tools and information he needs to make a decision.” To further drive home the value of a benefits plan, a discussion around employee stress levels is key. While the survey revealed that only 12% of small business owners and senior managers believe the stress level of their employees is a problem, numbers from Statistics Canada tell another story. A study on work/life conflict surveying more than 31,000 workers found that more than half felt stressed and one-third felt burned-out or depressed. A separate study by Statistics Canada found that absenteeism due to stress has increased by more than 300% in the past 15 years. The research shows that most small companies—whether they offer a plan or not— need help understanding that stress affects their employees. Only 14% of companies who offer a benefits plan are aware that stress is a concern for their employees. Even fewer (10%) of those who do not offer a plan are aware of it as a concern. Wortsman says that a case study or personal story about the effects and costs of stress on a small business is an effective way to get employers’ attention. “If you have clients who have already implemented programs and they’ve seen the results either in reduction in claims or critical illness claims being paid out, then those are great stories to share with a client who’s going through similar challenges,” he explains. Attias says that benefits advisors should also use these discussions to review the plan features that deal with stress—be it an EAP or other services— to draw attention to the stress level of employees. BENEFITS ADVISOR PROFILE Finding individual clients in group Sam Bruno Financial services manager Simmons, Black & Emsland Insurance Services Connecting directly with your client’s plan members is a way to boost the value of the plan—and an opportunity to grow your own business. Chances are you search for new group opportunities through your individual clients, but you can also follow what Sam Bruno, financial services manager of Simmons, Black & Emsland Insurance Services in Kamloops, B.C., does and try the reverse. “When a new employee joins one of my business owner’s benefit or retirement plans, I ask the company to send the new hire over to me,” he explains. “I personally sign them up to the plan and during that conversation, I talk about that individual’s personal financial plan. I often end up selling personal life insurance, an RRSP or another product to that individual. It ends up being positive for the owner because I’m enrolling the new employee, and it’s good for the growth of my individual book.” Top Talent Retention 11 SECTION THREE Top Talent Retention T o remain competitive, a small business must hang on to its most talented employees. A benefits plan is a crucial way to keep great employees from leaving their jobs. In fact, according to the 2011 sanofi-aventis Healthcare Survey, 59% of group health benefits plan members in Canada would rather keep their benefits plan than receive $10,000 in cash. When the amount is doubled to $20,000, 48% of those asked would still choose their benefits over cash. But according to the Manulife Financial Small Business Research Report, only 55% of business owners appear to understand the connection to attraction and retention. Although, those that offer benefits or retirement plans seem to be more aware of their value. Among those respondents that offer a health benefits plan, 71% see it as crucial in attracting and retaining top talent, while 31% of those that do not offer a health benefits plan see it as valuable. It’s a similar story for retirement plans. Seven in 10 (72%) of those that offer a retirement plan see it as very important and 48% of those that do not offer a plan see it as valuable. The data appear to reveal a potential opportunity for benefits advisors to sell more health and retirement plans. The majority of those without 12 Manulife Financial Small Business Research Report TOP TIPS evelop strategies D to respond when owners say “The plan is too expensive.” Think of a creative plan design or new ways of comparing the cost, such as the cost of a benefits plan being the equivalent of the company’s next raise. L ook for opportunities to create unique benefits offerings to help your client stand out in her industry. Do this by learning what competitors are offering and by getting to know the needs of the company’s employee base intimately. reate benchmarkC ing reports for clients regionally and then by industry. sk your client if A she is considering adding a pension plan and if not, what is keeping her from starting one. plans are already aware of the benefits, which suggests that other factors are the stumbling blocks preventing them from implementing plans. For those owners not offering plans and unaware of their value for attraction and retention, benefits advisors have a strong place to start a conversation. Among those who do not report retaining key employees as an issue, the most popular tactic reported is to pay them well (34%). A benefits package was a distant second (19%). Of those who view this as an issue, advisors are a source of support for this issue—31% of owners/senior managers report turning to a financial advisor for help. Benefits advisors can capitalize on this trust to show owners what a difference a competitive total compensation package could mean for the success of their organization. This begins with a discussion on the topic of benefits versus cash. A large number of the owners and senior managers who responded to the survey said they would offer some form of cash compensation— competitive wages (34%), bonuses (11%), salary increases (5%) or profit sharing (5%) — as a way to keep top talent. “Owners don’t seem to understand the value that is attached to benefits and how they can achieve much more by giving benefits—which have so much more value to the employees on a personal experience—instead of just a raise,” Attias says. After all, a 3% or 4% increase in salary will get taxed, so spending the money on a benefits plan puts more in the employee’s pocket, he explains. Owners appear to believe that cash means more to employees and is a cheaper option than a benefits plan. But benefits advisors know that’s often not the case. Horne says one way he tackles the belief that plans are too expensive is to ask an owner what his budget is and then build a solution accordingly. Bruno gets even more specific by asking what part of the plan the owner finds most expensive. “If they say dental, I work on the dental until I can get it down to a reasonable price with deductibles,” he says. Rose agrees that deductibles are a good FIGURE 5 Which of the following most closely represents your viewpoint? Competitive health benefits are crucial in attraction and retention 55% Neutral 33% Health benefits have no real impact in attraction and retention 12% Base: All respondents; N=1005 FIGURE 6 Do you offer or have you ever considered offering your employees any of the following? Offered Have Considered Profit Sharing/ Business Equity Plan 25% 47% 20% Group RRSP 47% Special Executive Plans 18% 41% 15% Employee Pension Plan 49% 0 10 20 30 % 40 50 Note: Responses less than 2% not shown Base: All respondents; N=1005 way to show owners that costs can be shared with employees. According to d’Eschambault, another way to change an owner’s paradigm about Top Talent Retention benefits versus cash is to “ask the owner what he thinks employees need and help him to provide that.” This gives the benefits advisor the opportunity to help the owner create a unique benefits package that is almost custom-tailored to the needs of an employee base. This kind of solution is much more valuable than cash because another employer will most likely not offer the same plan design. It becomes part of an overall employee retention strategy. Knowing what other companies are offering in their benefits plans is another way benefits advisors can show owners the value and importance of total compensation. “One thing that you can use to help illustrate this to a client is a benchmarking tool,” Wortsman says. “They will get a sense of whether their plan is measuring up against their competitors, if it’s worthwhile for an employee to stick around, or if they are far behind in some of the coverage.” Horne says that he benchmarks for his small business clients both regionally and across their own industries. 13 A positive trend, notes d’Eschambault, is the move toward insurance companies providing the small group market with benchmarking information. “The insurers will provide benchmark data for an advisor based on their block of business. They will drill down to a postal code or industry,” he says, adding that “there’s probably even more valuable data sitting somewhere on an insurer’s computer system that could be useful for everybody to have.” When it comes to the retirement plan side of the total compensation package, the survey data showed that 47% of all respondents offer some type of retirement savings vehicle for employees. The roundtable participants said that in their experience, the majority of small businesses have a profit-sharing plan. The survey found that 25% have a profitsharing plan, 20% offer a group RRSP, and only 15% offer an employee pension plan. However, almost half (49%) have considered offering a pension plan, providing another talking point for benefits advisors to bring up at their next client meeting. BENEFITS ADVISOR PROFILE Learning market influences on total compensation For Michael Horne, a partner in the Carleton Financial Group in Ottawa, total compensation in his region is being driven by the largest employer—the federal government. “Once companies get to about 40 people, they see their key employees leaving after three or four years to take government jobs because of the pension,” he explains. So, Horne is experiencing an uptake in pensions for groups of 20 employees and up, as companies come to realize it’s cheaper to put one in place than to lose key personnel and spend valuable resources recruiting and training new talent. “Gone are the days where people stay around long term. The younger generation is not afraid to move companies to get to where they want to be, and that is changing what companies have to do to keep people,” he explains. Research from various sources supports Horne’s personal experience. According to studies done by Robert Half International, generation Y (those born between 1980 and 1995) are expected to switch jobs frequently and are often looking for better benefits and perks. Michael Horne Partner Carleton Financial Group 14 Manulife Financial Small Business Research Report SECTION FOUR Controlling Costs F or small businesses, maintaining and growing a company requires carefully tracking costs now and figuring out ways to keep expenditures down later. The survey revealed that only one-fifth (20%) of owners currently view controlling costs as a problem. However, all of the respondents cited labour (27%), then payroll and salaries (22%), as the top two most important expenditures to consider when controlling costs. Those with health benefits plans are even more motivated to keep labour costs contained, according to the survey. Among those with a health benefits plan, 31% say that labour is an area that they would look at to control costs, while only 21% of those that don’t offer a plan would look at this area for cost control. Payroll is another area that those with a health benefits plan are more likely to indicate they would look at for cost control (25%) than those without a plan (17%). The survey also showed that of the small business owners who need help in controlling costs, most are turning to accountants (16%) or internal associates (13%) for support. So where do benefits advisors fit into this process? “The cost of labour, payroll and salary means benefits, too,” says Attias, but not all employers realize this. Goedecke says he often spends time explaining this to clients. “It really is tax-efficient compensation and not an add-on expense,” he says. For example, explains Goedecke, if an employer is going to spend $1,000 on salary or benefits, it’s the same $1,000 expense to the employer. But it’s a big difference to the employee. The $1,000 Controlling Costs FIGURE 7 TOP TIPS With respect to costs, what are the top 3 areas you focus on when you are trying to control your expenditures? Labour/staff/employees Payroll/salaries/wages Marketing/advertising/branding Travel Inventory Material/material costs Company expenses/overhead/fixed costs Expenses/costs Utilities Purchasing Rent/lease Supplies Equipment Gas/fuel Maintenance/repairs Vehicles Note: Responses less than 4% not shown Base: Total answering; N=903 15 27% 22% 12% 11% 10% 10% 9% 5% 4% 4% 4% 4% 4% 4% 4% 4% 0 in wages is taxable, but $1,000 in benefits is not and has arguably more spending power. Once owners connect benefits costs to payroll expenses, benefits advisors can open up discussions on strategies to managing expenditures. Is the plan being utilized? Could the plan design be changed to maximize health outcomes? Should the payment structure between the owner or sponsor and employees be altered to promote more responsible use of the plan? “Controlling costs means helping the owner provide these benefits for his or her employees in a meaningful and economic way,” d’Eschambault says. One area where benefits advisors are strongly positioned to provide insight on controlling costs is around the stress of employees. For example, the Canadian Policy Research Networks estimates that stress-related absences cost Canadian employers about $3.5 billion each year. According to the Conference Board of Canada, 2.6% of payroll is lost annually as a result of absenteeism (defined as employee absences due to illness, disability or personal or family responsibility). To get more information, a benefits advisor can ask questions such as “Are you interested in controlling the costs of absenteeism? Do you have stress in your workplace? What effect is it having?” Uncovering 5 10 15 % 20 25 30 details about which costs keep owners up at night will give a benefits advisor a starting point for reducing those costs. Many large organizations already capitalize on this approach in managing their benefits plans, Horne says. “It’s our job as the advisors to bring those ideas that have already been studied and understood for years by larger companies to these clients with 10 employees,” he explains. “It’s about taking things from the claims-based products and moving them to the service-based products, which I think is how we are starting to talk to our clients.” D’Eschambault also believes benefits advisors need to provide owners with valuable information. The traditional small business owner does not have access to the literature that benefits advisors get on these issues, he says. “It’s our job to package these data up better and show how those broad numbers translate into everyday costs.” Ultimately, explains d’Eschambault, part of being a good benefits advisor is being willing to challenge your clients on their paradigms. “We are not yes men. I think it’s up to us to show our clients what steps need to be taken, and why. This is real value to our clients.” Not all clients are looking to cut benefits. D’Eschambault says he is surprised at the E xplain the concept of total compensation to your clients so they understand that benefits costs are a part of overall labour costs. Then outline ways you can help control benefits costs to keep those labour costs low. learly differentiate C between the cost of having a plan and the cost of not having a plan, which includes everything from decreased productivity to absenteeism and stress to talent that moves to the competition. etwork with fellow N benefits advisors with experience in large case clients to share trends and insights and brainstorm creative solutions for clients. eview the ways R benefits plan design can control costs and be ready to present custom-tailored ideas to your clients. 16 Manulife Financial Small Business Research Report FIGURE 8 Where or who would you turn to for help or assistance to deal with controlling costs? Accountant/accounting department/accounting firm/CA 16% Internally/associates within the company/staff/colleagues 13% Suppliers/dealers/vendors 11% Managers/office/general/department/operation/regional 7% Myself 6% Business partner/partners 4% Financial institutions/Bank/Bank manager 4% Senior management/executives/employees Note: Responses less than 3% not shown Base: Total answering who ranked the issue as a problem; N=250 number of smaller clients that have recently been requesting that he enhance their plans. “It’s making me think. In the last 25 years we’ve been saying owners need to increase their deductibles and lower their co-insurance. Basically, you need to strip your benefits plan down. But for some, it’s the exact opposite. So are we really listening to our clients?” Horne believes benefits advisors are attempting to be sensitive to their clients’ concerns by suggesting options for cost savings. “When an employer is talking to you about cost and you come in with a proposal to increase costs, you put yourself at serious risk,” he says. 3% 0 5 % 10 Both d’Eschambault and Horne agree that the route around this problem is to develop a deep understanding of the employee base, its needs and the client’s goals for taking care of the employees and controlling costs. For example, the survey showed that as small companies increase in size they are more likely to offer a health or retirement plan. Among employers that offer a health benefits plan, the average number of employees is 25 versus 11 employees for those that do not offer a health benefits plan. Among those that offer a retirement plan, the average number of employees is 32 versus 14 for those who do not. BENEFITS ADVISOR PROFILE Taking ideas from big to small Michael Wortsman Associate broker Creative Planning Financial Group 15 Small organizations typically don’t pay attention to the research showing how companies can control costs because the data are often based on large organizations. “They don’t realize that an investment in an EAP program will, over the long term, reduce health claims. But advisors know,” says Michael Wortsman, associate broker with Creative Planning Financial Group in Toronto. “Our clients are not too small for an EAP.” Other non-traditional benefits services, such as medical referral and second-opinion services, should also be available to smaller plans, he explains. “We know they are going to help the employees’ families feel better, which will make the owner feel better about the plan he provides.” A benefits advisor can apply the learning of how larger companies tackle controlling benefits plan costs in a scaleddown version for small employers. Access to Capital 17 SECTION FIVE Access to Capital T he volatility of the national and international markets will no doubt have an impact on small business in Canada. Despite that ever-present reality, small businesses appear to be optimistic. In fact, about six in 10 (59%) of the respondents of the survey say that getting access to capital is not a problem. And 53% say managing cash flow isn’t an issue either. There are, however, some that do say access to capital is an issue. Of those, 48% turn to the bank for help and 36% turn to an accountant for support with cash flow issues. These results are in line with Horne’s belief that the small business market in Canada is very optimistic and healthy right now. Wortsman agrees. “From my perspective, I think the smaller companies are proving to be healthier financially than the larger ones that are at that crossroad about where they need to invest,” he says. While traditionally benefits advisors might have had little to offer in helping small businesses access capital, this role is changing. It’s now about benefits advisors positioning 18 Manulife Financial Small Business Research Report TOP TIPS each out to smaller R companies that are growing slowly and steadily. They may soon need benefits or retirement programs to attract and retain key employees. E conomic recovery presents an opportunity to retain employees. on’t shy away from D conversations about access to capital, growth and managing cash flow. Ask about challenges and see if clients require help finding information or experts. ork with your W clients’ accountants to demonstrate how benefits costs can be controlled to ease cash flow issues. et to know your G clients and their businesses thoroughly. In-depth knowledge can help you shape a custom-designed benefits or retirement solution that makes you invaluable to the business. FIGURE 9 What areas in your company do you expect to invest in over the next 12 months? Marketing/advertising/branding Equipment/equipment upgrades Computers/hardware/software Training/staff training Technology Real estate/property/office space Employees/labour/staff Hiring new staff/qualified staff Vehicles Machinery Renovations/upgrades/improvements Website/internet Expansion/growth New/improved products/services Inventory/merchandise/materials R&D Sales Additional space NA/none/don’t know 14% 11% 9% 8% 7% 7% 7% 5% 5% 4% 4% 4% 4% 3% 3% 3% 3% 3% 10% 0 Note: Responses less than 2% not shown Base: Total answering; N=892 themselves to add value. “Companies that are in a healthy spot financially might be looking at implementing a benefits program,” Wortsman says. Experience has taught Bruno that economic growth leads to a demand for benefits. “In B.C., we had a building boom a few years ago. Before the boom, the contractors that we approached wouldn’t even consider benefits. Once the building boom got going, all of a sudden they wanted benefits to keep their electricians, plumbers and others from moving to another company,” he said. Horne also sees opportunity for his book of business when a client is discussing growing his or her company. “If I’m in front of a client and he is looking to grow the business, I have people in my network that I would like to get him in front of. Hopefully, one day those people send me clients who are looking for benefits,” he says. He believes smaller to midsize companies will be most open to this kind 3 6 % 9 12 15 of service from a benefits advisor. For example, if a company with 50 employees is using the same bookkeeper that it was using when it had three employees, the company may not be getting the best advice. “So in a casual conversation, I suggest the owner get a second opinion,” he explains, adding that he will then provide a few options from his network. It’s important for Horne to be discussing many elements of his clients’ organizations (including access to capital) so he can provide this type of additional support. D’Eschambault also sees the potential in this kind of approach. “Ideally, clients will say, ‘You know what? Roger has helped me out a lot, and I’m going to call him up and ask what he thinks about this issue,’” he says. In this way a benefits advisor becomes the trusted resource for a small business owner. When it comes to cash flow, benefits advisors can offer more direct suggestions. “Group insurance is a big chunk of the expenses. We Access to Capital are able to manage a portion of the cash flow by helping the employer control the increasing costs or giving options to manage it,” Attias says. An obvious challenge with having a small business owner who is successfully growing is how does a benefits advisor adapt to this growth? In some cases, says d’Eschambault, there is nothing a benefits advisor can do when a company is bought out by a corporation with an existing plan. However, Attias believes a benefits advisor in this position can be a key resource for the incoming person or team taking over a plan. “When a new person comes in we already have full knowledge of the company and we can make sure that this information is transferred to those people,” he says, adding that this supports a smooth transition. “I think it’s also important to keep the relationship strong with the employer,” he adds, believing this strong connection, built on long-term, intimate knowledge of the business, could lead to consulting work for the benefits advisor. But according to Bruno, the best way to service businesses that just grow organically is to focus on the distinct needs of each 19 FIGURE 10 Which of these issues do you feel you need the most assistance dealing with? Ranked 1, 2 or 3 Ranked 1 Not Ranked 100 85% 81% 80 60 40% 40 26% 20 0 15% Access to capital 19% Managing cash flow Base: Those that rated issues as a problem; Range: N=209; N=182 client. “There is no one size fits all. Every company has different benefits and different pensions, and they require different approaches,” he says. BENEFITS ADVISOR PROFILE Growing with your clients Typically, when a small business grows to the several-hundred level, the benefits advisor servicing the company’s benefits plan can expect to be served with a transfer letter. “Our advantage is to have such a unique proposal in place that it’s not easily [shifted] to another advisor,” says Roger d’Eschambault, president of dElta Benefits Inc. “I want what we do and what we sell to be simply not available and transportable. So, what does that look like? What can I do to enhance the value for the employees in the firm? What are the things that make the employer look better to his employees and how can I deliver those to the employer? My point is, advisors must know their small business clients and their needs. It’s about recognizing that each client’s environment requires a custom-designed solution.” Roger d’Eschambault President dElta Benefits Inc. 20 Manulife Financial Small Business Research Report SECTION SIX Growing Revenue A s the Canadian economy remains cautiously optimistic in the face of economic uncertainty in the U.S. and Europe, small business owners are divided. According to the survey, half (49%) of business owners agree that they are just holding on economically, while the rest (50%) disagree. When it comes to growing revenue, small business owners are also evenly divided on the topic. About one-third (29%) of those surveyed said growing revenue is not a problem for them, while 36% said they are neutral on the issue. But growing revenue is a concern for the remainder of the respondents. In fact, 29% of owners/senior managers surveyed said it is a problem for them and their business. Of those, an overwhelming majority (92%) feel they need help growing revenue, and they are turning to senior partners/external associates, business consultants, customers and financial institutions for this support. A closer inspection of the data showed some interesting comparisons. To start, the small businesses that offer either a benefits or Growing Revenue FIGURE 11 TOP TIPS What is the total Canadian revenue of your organization? 4% 1% 1% 1% 7% 11% No answer $25 million or more $20 to $24.9 million $15 to $19.9 million $10 to $14.9 million $5 to $9.9 million Up to $500,000 26% Average $3.545 Million Base: All respondents; N=1005 $500,000 to $999,999 $2.5 million to 4.9 million 13% $1 to $2.49 million 16% 21% FIGURE 12 FIGURE 13 Do you have a written annual business plan? No No 21 Did you have external assistance in preparing your business plan? YesYes (definitely) (definitely) 40% 40% YesYes 29% 29% 26% 26% No No YesYes (kind (kind of) of) 71% 71% 34% 34% (NET): 59% YesYes (NET): 59% All respondents; N=1005 Base:Base: All respondents; N=1005 who have a written annual Base:Base: ThoseThose who have a written annual business N=151 business plan; plan; N=151 retirement plan were more likely to report an increase in revenues over the past five years than those who didn’t offer either type of plan. Next, those companies that offer a health benefits plan reported average revenues of $5 million compared to $1.5 million for those that do not offer a plan. So where is the benefits advisor’s place in growing revenue? According to Horne, it’s related to business development. He actively engages clients in conversations about where their companies are headed, which provides him with the opportunity to create added value. “We have a roster of accountants, HR specialists and business development consultants [to help carry on that conversation], but we stay involved in the process,” he explains. Rose agrees with staying close to the business planning process so benefits advisors can highlight the importance of competitive compensation packages that include benefits and pension plans. “You are fitting yourself into their business model by explaining that attracting the best quality employees is their most important asset in growing the business and making it successful,” he says. These conversations can also include suggestions for controlling labour and employee costs, T alk to clients about business planning and inquire if they have a written plan. If they do, ask to see it. If they don’t, suggest a business plan consultant from your network. L earn about your clients’ business and industry and use that information to spark a conversation about what clients plan for the future. evelop relationships D with business plan consultants and business development experts. Explore challenges and roadblocks that small businesses face and ask your clients about them. Offer these contacts as referrals when your clients need help. Include benefits and pension costs into the business plan, so the owner can plan accurately for growth and avoid unnecessary surprises. reate a library of C business planning and development resources. When issues come up in conversation, offer to send these resources to the business owner. 22 Manulife Financial Small Business Research Report all of which contribute to the company’s ability to grow revenue. Bruno, who services many very small group clients, says he is quite involved in business development with his customers. “We pretty well know exactly where they are going from a business perspective. They’re very open to sharing their business plans,” he says. But it is important to balance the opportunity to help clients with the risks of doing so. “You can build a fence around your client by providing additional services that will help entrench you in their business, but there’s also a point where you’ve crossed over into an area where you’re not an expert,” Wortsman says. Rose agrees. “You’re really working on tricky ground if you step out of your core competence and tell the customer that you can do something that you really can’t do,” Rose says. He believes the best approach is to meet with clients as a fellow small business owner looking to discuss issues related to running a company, and then see where the dialogue goes. When faced with an issue beyond his scope, such as anything falling in the legal or tax realm, Bruno accesses his network of experts FIGURE 14 Compared to 5 years ago what is the change in your company revenue? Big decrease (-50%) 11% Big increase (+50%) 30% Mid (-25%–+25%) 57% Base: All respondents; N=1005 to help support his client. This has resulted in deep trust from his clients, which has translated into referrals. “Not only do I get their business, but they refer us,” he says. “We have a lot of clients in the same industries, and even though they are competing for the same business, they [still] recommend our firm to one another for benefits issues.” BENEFITS ADVISOR PROFILE Helping clients build a business plan Gad Attias President Groupe Censeo Inc. The survey revealed that 40% of business owners do not have a formal written business plan. “For small business owners, a business plan is often in their head. They are very hands-on and know what they should do this year to reach their goals. They don’t have the resources, like a VP of finance, to give projections and keep them tightly on track,” explains Gad Attias, president of Groupe Censeo Inc. in Laval, Que. So this presents an opportunity for benefits advisors. “When it comes to the group pension or benefit portion of business planning, these costs, specifically group insurance costs, are something that eats up a big portion of expenses every year. The advisor can help project future costs of this expense and show how it will impact cash flow.” Attias feels helping a business owner identify where cash will be needed so he can plan more thoroughly is the most effective indirect way to help a client grow revenue. 2 011 Manulife Financial Small Business Research Report Advisory Board The 2011 Manulife Financial Small Business Research Report relied on the advisory board to help shape the survey theme and interpret the results. We thank them for investing their time, breadth of knowledge and expertise in this inaugural look at the small business market in Canada. Gad Attias Sam Bruno Joël Drolet President Financial services manager General manager Groupe Censeo Inc. Simmons, Black & Emsland Goguen Champlain Insurance Services Financial Services Inc. Roger d’Eschambault Herb Goedecke Michael Horne President and CEO Partner President Aero Corporate Benefits Carleton Financial Group Jay Quinn Joel Rose Michael Wortsman President Principal Associate broker Lane Quinn Benefit usefulideas Creative Planning dElta Benefits Inc. Consultants Ltd. Financial Group Learn about all the innovative ways Manulife Financial supports advisors and their small business clients. The Small Business Solutions Centre winwithsmallbiz.ca Manulife’s Shop for Business Owners manulife.ca /businessowner To download an electronic copy of this research report, and other tools and resources, visit smallbizadvisorweek.ca. Si vous désirez obtenir un exemplaire de ce rapport en français, veuillez vous rendre à l’adresse conseillerpmehebdo.ca pour le télécharger. The Manulife Financial Small Business Research Report is published by Rogers Publishing Ltd. © 2011, Manulife Financial.
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