It’s never been a secret that small businesses are good for the nation’s coffers—financial diversity is the backbone of a strong economy. But a recent study indicates that Canadians think entrepreneurs are the primary factor driving the economy in Canada, and that they need more support.
In the study, released by the Canadian Federation of Independent Businesses, 79 per cent of respondents believe the economy is driven by entrepreneurs. And a similar percentage said various levels of government do not do enough to help these businesses get established and grow.
Coverage of the latest small business news, trends and issues, as well as advice from experts on everything from starting and marketing a business, to managing staff and improving the bottom line.
The study also found that 94 per cent of Canadians admire entrepreneurs and 92 per cent would approve if a family member tried to start their own business.
Perhaps these sentiments could be directly attributed to the up-and-down nature of the economy —with stock markets in wonky shape and corporations closing plants and laying off staff, people may not be ready to put their trust back into big business.
Whatever the reason, the respect for entrepreneurs as being the bedrock of Canada’s economy is there and it is warranted, at least according to the numbers.
Issues of size
According to Industry Canada, a small business in the goods-producing sector has a workforce of fewer than 100 employees, while in the service sector, the cutoff is 50 employees.
Nationally, 98 per cent of businesses employ less than 100 people and can therefore be categorized as small.
But while small business makes up the lion’s share of the employer pool in Canada, the majority of these small businesses actually qualify as micro-enterprises—companies with fewer than five employees.
In a report released in July 2010, Industry Canada calculated that 54 per cent of businesses operating in Canada have between one and four employees, including the business owner. In Alberta the numbers are the highest, with nearly 60 per cent of businesses classed as micro-enterprises.
Despite their respect among Canadians, confidence among entrepreneurs fell drastically in August. The CFIB's business barometer index dropped to 61.7 — its lowest level since July 2009. The index measures small business owners' performance expectations and a reading over 50 per cent means the number of entrepreneurs who believe their businesses will exceed the previous year's perofrmance is greater than those who believe the opposite. According to the CFIB, the normal range is between 65 and 75 per cent, when the economy is growing.
Life span and earnings potential
These small enterprises tend to have staying power even in tough times, although as a small business ages, the odds of its continued success drop dramatically.
Industry Canada numbers show that 96 per cent of small businesses that entered the marketplace in 2001 survived their first year. By the time the calendar hit 2006, only 70 per cent of those businesses remained.
Micro-enterprises have slightly higher survival rates. Industry Canada says 70 per cent of businesses established in 2001 with fewer than five employees were still around five years later, compared with only 67 per cent of businesses with more than five employees.
Job creation hinges on calendar
The average weekly salary for employees of Canadian companies with fewer than five employees is $750, which is $27 higher than the average for all small businesses. The national weekly average for all types of businesses combined is $799.
Many studies have indicated that small business employers tend to hire more frequently than their big business counterparts when the economy is in recovery. While this may be true, it tends to skew statistical analysis if you begin your search at the time of an economic upswing.
For example, Industry Canada estimates that small businesses accounted for 37 per cent of job growth between 1999 and 2009. However, analysis on a year-by-year basis produces more telling results.
In 2002, small businesses accounted for a 62 per cent of new jobs in Canada. This dropped to 32 per cent in 2003 and then plummeted to 7 per cent in 2004. In fact, in 2003, small businesses with 50-99 employees actually eroded jobs by 185 per cent. The numbers improved over the following years, but then dropped again from 52 per cent in 2008 to 39 per cent in 2009 due to the economic crisis.
Even though Industry Canada cites 2003 as a statistical anomaly, these numbers do suggest that, while small businesses do contribute to overall job creation, the rate at which they do so can be as unreliable as with big business.