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Canadian entrepreneurs plan to invest $140.5 billion in 2018

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Canada’s robust economy is encouraging entrepreneurs to invest more in 2018 to acquire businesses and make their companies more competitive, a new BDC survey of more than 4,000 Canadian business owners indicates.

Owners of small and medium-sized businesses plan to invest $140.5 billion in 2018, a 2.9% increase over what entrepreneurs spent in 2017, according to BDC's Investment Intentions of Canadian Entrepreneurs: An Outlook for 2018.

Buying businesses showed, by far, the biggest increase in planned investments. Entrepreneurs intend to spend $18.9 billion on acquisitions this year, a 79% jump over what they spent in 2017. The upturn in acquisition plans was spread across all regions and sectors.

A good time to buy a business

Many baby-boom generation entrepreneurs will be exiting their businesses over the next five years. A pair of recent BDC studies—one from the perspective of business buyers and the other from that of business sellers—found the next few years will be an excellent time for transactions.

According to the survey of investment intentions, entrepreneurs also plan to increase their capital spending on employee training, intellectual property and R&D by a total of $2.4 billion. This reflects a long-term trend of higher spending on intangible assets—the non-physical things businesses depend on in a modern economy.

By contrast, business owners plan to reduce their investments on tangible assets—machinery and equipment, vehicles and non-residential construction—in 2018. There was also a slight drop in investment intentions on computer hardware, software and e-commerce. Together, these categories represented a decrease of $6.7 billion.

A year of exceptionally strong growth

While worrisome at first glance, these declines follow a year of exceptionally strong economic growth. Entrepreneurs invested aggressively at the beginning of 2017 and scaled back their spending as the year progressed, the study notes.

“We expect the economy to maintain its momentum from 2017 well into 2018, although at a slower, more sustainable pace. It’s likely investments in tangible assets will follow the same trend.”

However, the survey found that shortages of skilled workers, liquidity constraints and risks associated with investment projects would limit investments. At the same time, the survey reflected favourable credit conditions for businesses with entrepreneurs ranking the availability of financing at the bottom of factors restricting investments.

Larger businesses spend to automate

Another notable finding was spending plans to increase automation—a key to higher productivity. Close to half of medium-sized businesses, those with 100 to 499 employees, plan to invest to increase automation in their operations. By comparison, only a quarter of small businesses, those with one to 99 employees, plan to make this kind of investment.

By region, British Columbia and the territories, Alberta, and Quebec have the most positive investment outlooks. There was a slight downtick in investment intentions in Ontario, while other regions show greater declines. By sector, investment intentions were higher in the services and technology sectors, while remaining stable in manufacturing.

Entrepreneurs stick to traditional lenders

More than a quarter of businesses plan to seek a business loan to finance their investments, mostly from a traditional financial institution, such as a Canadian chartered bank or a credit union. While one in 10 businesses in the technology intend to use alternative financing sources such as crowdfunding or online lenders, the proportion drops to one in 50 for other types of businesses.

For more information, download your free copy of Investment Intentions of Canadian Entrepreneurs: An Outlook for 2018.