While self-employment has risen noticeably slower than paid employment since the beginning of the decade, Canadian small- and medium-sized enterprises (SMEs) have been creating a more significant share of jobs since 2010, finds a report by CIBC World Markets.
Between 2010 and 2016, 42% of new jobs were created by businesses with less than 100 employees, up from 30% between 2000 and 2010.
The trend is particularly strong west of Quebec. “Each province from Ontario to B.C. has exhibited a growth rate of more than 9% in the number of companies with employees,” notes the report, authored by Benjamin Tal, deputy chief economist, and Royce Mendes, director, at CIBC World Markets .
Last year, more than 350,000 businesses were created and just under 300,000 exited, with the entry rate (the ratio of business creation to total businesses) on the decline since 2004, while the exit rate has been more stable, despite the impact of the fall in oil prices a couple of years ago.
“Small business optimism has been grinding higher since bottoming out early last year and appears headed back to levels seen prior to the oil price shock,” say Tal and Mendes. “With the Canadian economy in recovery mode, the environment for small businesses remains constructive.”
Challenges: revenue expansion and financing
While the World Bank ranks Canada as one of the best places to start a new business due to access to capital and a favourable tax regime, the CIBC report highlights several gaps, including slow revenue expansion outside North America and funding gaps for some entrepreneurs.
“SME revenue continues to be geographically concentrated in North America, creating risk,” say the authors. “Currently, only 10% of SMEs are involved in any sort of exporting at all, and roughly 90% of those companies are sending their wares to the U.S. In the current political environment, it has become a risky proposition to focus solely on the U.S. market.”
As an alternative, the ratio of Canadian goods and services exported to Asia and Latin America could be increased.
“The age of digital connection has made it much easier to send Canada’s high-end service exports all over the world, something many SMEs could benefit from,” they say.
Further, financing issues are faced by young business owners.
Canadians between 25 and 39 make up more than 25% of the population, yet represent less than 15% of small business owners and less than 10% of medium-sized business owners.
In contrast, Canadians aged 50 to 64 years also represent about 25% of the population but represent 47% of small business owners and 51% of medium-sized business owners.
“It will be important to watch this segment of the population as Canada tries to compete with other countries in the tech landscape, which is more tilted toward younger business owners than other industries,” say Tal and Mendes.
Read the full report.