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Diversified companies see faster profit growth, BDC study finds

Alberta businesses in the energy sector that have customers in multiple cities are far more likely to be prosperous, according to a study released Monday by the Business Development Bank of Canada (BDC).

Business Development Bank of Canada compared almost 1,000 Alberta firms

Small- and mid-sized energy companies that are well diversified have a better chance of prospering than less diversified businesses, says a new study by the Business Development Bank of Canada (BDC). (The Canadian Press)

Alberta businesses in the energy sector that have customers in multiple cities are far more likely to be prosperous, according to a study released Monday by the Business Development Bank of Canada (BDC).

The survey of 998 Alberta companies with five to 499 employees found that seven in 10 of them with clients in more than one city had 10 per cent or higher annual revenue growth in the past three years.

Only three out of 10 companies with clients in just one city saw the same level of  revenue growth.

"The message is clear—diversification is a critical strategy for Canadian businesses to succeed in these challenging times," said BDC chief economist Pierre Cléroux in a release.

"Business owners who fail to do so may be missing growth opportunities and putting their company under unnecessary risk."

The study also looked at manufacturing and construction companies in Alberta.

BDC says exporting is the most effective diversification strategy for manufacturing companies.

"More than one in four manufacturers that export had 20 per cent annual profit growth or higher in the last three years —versus just 8 per cent of those with no regular exports," BDC said in a release. 

In the construction industry, firms with multiple product or service lines had the strongest balance sheets, the study found.

"Six in 10 such companies achieved 10 per cent or higher annual revenue growth over the last three years — compared to only three in 10 companies that offer only one product or service line," BDC said.

Business consultants with BDC came up with some tips for building a diversification strategy:

  • Harness core strengths: Companies should consider how existing assets (buildings, machinery, staff, expertise) can be used for other purposes.
  • Ensure financial stability: Companies shouldn't jeopardize existing business as they try to diversify, and look for the least costly and complicated options.
  • Address weaknesses: Entrepreneurs should always "stress‑test" their business. "For example, they can ask what would happen if they lost their biggest client or faced an economic shock," BDC said.

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