In the first quarter of 2009, Canada's personal incomes rose by 0.3 per cent. (Steven Senne/Associated Press)For the first half of 2009, the bad news for Canada's small business sector had been piling up faster than excuses in a high school geography class on term-paper day.

Consumers weren't buying; banks weren't lending; governments weren't helping: entrepreneurs in Canada and the United States could tick off a litany of reasons why the prospects should be bad for the tiny-company sector.

For Don Bradley III, however, the timing to start a small business couldn't be better.

"I think it's the greatest time we've ever had for small companies," said the executive director and professor of marketing at the Small Business Advancement National Center at the University of Central Arkansas, in Conway, Arkansas.

That might appear counterintuitive given the fragile state of the national economy.

But entrepreneurs pride themselves on their flexibility and risk-taking, Bradley said.

And with the advent of new communications services and technologies, new companies have a terrific opportunity to carve out their niche and make money as the economy turns around, he said.

"A lot of these people are engaged in a bit of self-pity," Bradley said. "They need to start looking around at what people want."

Of course, as a group, small business types have always tended to be more optimistic than they have been in the past few months.

After all, future gains must be the reason why they are willing to put in 20 per cent more hours on the job to earn almost 10 per cent less than salaried employees, according to Industry Canada figures.

"You have to believe that things are going to be better in the next six months. Otherwise, you'd go mad," said Ted Mallet, vice-president of research and chief economist for the Canadian Federation of Independent Business, a well-known small business association.

Seeking a turnaround

Even the sunniest disposition has to see some blue sky, however, before declaring the storm over.

So far, though, the outlook remains stubbornly cloudy.

Interestingly, in the world of small business, gross domestic product (GDP) — the mother of all economic indicators — is not necessarily the most important one for the entrepreneurial sector.

That is because, while the overall fortunes of an economy do matter locally, a lot of small businesses only sell within a small geographic area and might not export to other countries at all.

Thus, experts say, numbers such as disposable incomes or household net worth are more important because they show how much cash people have to buy products and services in a particular area.

In the first quarter of 2009, Canada's household incomes gained 0.3 per cent for April to June 2009, significantly better than the American decrease for the same indicator for the second three months: 2.6 per cent.

As well, Canadian personal disposable income — a different measure than household net worth — rose 0.4 per cent in the second three months of 2009 compared to the Jan.-to-March period.

To be fair, the January-to-March period was exactly the time when the Canadian and U.S. economies hit their low points.

Since that quarter, the American economy, which had been hammered harder than its Canadian cousin in the six months from October 2008 to March 2009, has bounced off the financial mat faster than Canada.

BMO Economics said the Canadian economy shrank 3.4 per cent in the April-to-June timeframe while the U.S. economy only contracted by 0.7 per cent.

Similarly, the U.S. economy will grow by 3.8 per cent and 2.7 per cent in the third and fourth quarters of 2009 respectively, the bank predicted.

'I have noticed — and happily so — that consumers are slowly realizing that price alone is not sufficient to make a purchase decision.'—Jimmi Daoud, Rogers Music Centre

By contrast, Canada is expected to post growth of 1.3 per cent in the July-to-Sept. quarter and 3.4 per cent for the final three months of the year, according to BMO.

Overall, the outlook still looks uneven as evidenced by Canada's slipping retail sales in July.

In that month, Statistics Canada's measure of revenue among furniture, home furnishing and electronic stores dropped 0.6 per cent from June. The decrease marked a reversal from May to June, when sales for the same stores rose by 0.6 per cent.

A ray of optimism

In terms of cash-in-wallets, however, Statistics Canada said the personal disposable incomes of Canadians rose 1.1 per cent in the April-to-June period of 2009 versus the same quarter a year earlier.

In addition, BMO believes that Canadians' real disposable income will grow 1.1 per cent in the third quarter and 1.0 per cent in the fourth quarter.

Other pieces of a small business economic recovery are already falling into place.

In September, the number of new jobs in Canada rose for the second month in a row. Better still, the national economy churned out 92,000 new full-time jobs even as 61,000 part-time positions disappeared.

That situation marked a reversal from the country's recent financial history, when Canada produced new part-time work but chewed up full-time jobs.

Some of the country's economic improvement is already being reflected in how small businesses view the upcoming year.

"I have noticed — and happily so — that consumers are slowly realizing that price alone is not sufficient to make a purchase decision. Quality and service weigh heavily on the decision process," said Jimmi Daoud, owner of Rogers Music Centre, a musical instrument retailer in west-end Toronto.

Indeed, Mallet said the small business federation's August optimism indicator backs what Daoud already feels.

The optimisim index reached its highest level — 65.4 — since 2007 in August.

"We're seeing hopeful signs of a recovery," Mallet said.

Small firms, whether Daoud's music shop or the restaurant at the corner, rely on subtler hints of an economic recovery rather than big macro indicators like GDP growth, he said.

How many customers are walking through the door, what suppliers are saying, what the local newspaper is highlighting are more important to small-scale entrepreneurs than a bank's economic forecast, Mallet said.

Whatever tea leaves are getting read, however, the economy has stopped shrinking, leaving small business to weather a sharp but relatively mild recession this time around, according to the small business federation.

"By most accounts, the 1982 recession was worse," Mallet said.

Fast change, faster response

Savvy retailers are using social networking tools such as Facebook and Twitter to expand their customer base. (Phil McCarten/Reuters)Now, the key for small companies is to take advantage of the sector's much-touted ability to move into new areas quickly and efficiently, according to the experts.

Emerging industries, such as telecommunications and technology, are businesses where companies are seeing opportunity, said Central Arkansas' Bradley.

In addition, innovative ways of reaching customers, especially social networking tools such as Facebook and Twitter, offer enterprising owners the chance to really boost their financial fortunes in the coming year, he said.

Taking advantage of innovations is perhaps the best way to lead a small business to that successful 'sweet spot', Bradley said.

"People miss the lesson of Walmart [which is based in Arkansas]," he said. "That company used satellites and communications technology to control [costs]," he said.

For Daoud, turning into Walmart isn't the goal; building his business is.

"We haven't felt a recession. If anything, my business — both sales and music lessons — have been constantly ascending for the past 10 years," he said.

And, it is that kind of slow and steady improvement that will keep him in growing, Daoud said.