The recent years have been challenging for most companies, but most of all for small businesses. As more and more people are shopping online, a development speeded up by the global pandemic, small companies often haven’t got the workforce or the know-how to create an online presence that could compete with larger companies. Neither can they compete in prices with large online retailers.
As a result, many small Canadian companies are struggling and many small company owners do not have a positive future outlook, nor are they expecting their sales to increase.
Yet, small businesses are the backbone of the Canadian economy, making a significant contribution towards the Canadian gross domestic product (GDP). They are also vital in keeping the employment numbers up in Canada.
In this article, we share with you key statistics about small businesses in Canada.
Small Business Statistics for Canadians
- Almost 98% of Canadian businesses are small companies.
- More than a third of small businesses are not optimistic about the future.
- Small companies employ over 10 million Canadians.
- Small and medium-sized companies contribute over half of Canada’s GDP.
- The revenues of many small Canadian companies have decreased in recent years.
- Almost 20% of small businesses with less than 20 employees expect sales to decrease.
- Over 20% of small businesses are worried about cash flow.
- 5% of small businesses do not survive their first year.
- Over 70% of Canadian small businesses fail because of management issues.
- 58% of small business owners believe a work-life balance is crucial for long-term survival.
What is a Small Company in Canada?
There are different ways to categorise companies in Canada. The most straightforward system is the one used by Industry Canada, which categorises businesses according to the number of employees they have.
By this definition, companies that have less than one hundred employees are small businesses. This category also includes micro businesses, which are companies with less than five employees. Companies employing between 101 and 500 members of staff are medium-sized and anything over that is categorised as a large company.
The Canadian Bankers Association, the Export Development Corporation, and The Canadian Small Business Financing Program have their own ways of defining small companies based on credit limits, export sales, and annual revenue respectively.
Companies with a credit limit below half a million dollars, export sales below $1 million, or an annual revenue under $5 million are categorised as small by these organisations.
What Percentage of Canadian Businesses Are Small?
A vast majority of Canadian businesses are small. In 2020, 97.9% of all businesses in Canada were small businesses including those classified as micro businesses. That percentage represents 1.19 million out of the 1.21 million employer businesses in Canada. Only 0.2% were large businesses, while 1.9% were medium-sized.
Small Business Demographics in Canada
In Canada, most of the small and micro businesses are found in the service sector. 78.9% of all small companies are in the service industry, while 21.1% of the companies produce consumer goods.
73.9% of Canadian companies have less than ten employees. 55.3% employ less than five people and 18.6% have between five and nine members of staff. Baby boomers are the biggest business-owning age group, owning 42% of Canadian companies. The number of small businesses owned by millennials is growing with 24% of all small companies owned by a millennial in 2019.
Men in Canada are still more likely to own a business compared to women. In 2018, 63% of business owners were men. However, the number of women starting a business is growing, with the biggest increase taking place in the service and retail sectors.
Which Provinces/ Territories Have The Largest Number of Small Businesses?
The majority of small businesses in Canada are found in three provinces; Ontario, Quebec, and British Columbia. In December 2020, Ontario had 439,694, Quebec 250,724, and British Columbia 187,697 small businesses. The biggest concentration of small businesses, however, is on Prince Edward Island where there are 48.7 small businesses per thousand people. Quebec has the smallest concentration with 36.8 small businesses per thousand people.
What Percentage of Canadians Are Employed by Small Businesses?
Small businesses may only employ a few people each, but combined, they are the biggest employers in Canada. According to the data from Statistics Canada, in 2021, 98.1% of all employer businesses in Canada were small businesses.
In 2021, they employed 63.8% of the Canadian workforce which represents 10.3 million people. Medium-sized local businesses employed 21.1% and large businesses 15.1%. These percentages represent 3.4 and 2.4 million people respectively.
The Combined Contribution of Small And Medium-Sized Businesses to The GDP is Over 50%
Small Canadian companies make a significant contribution to the country’s GDP. In 2018, small businesses in the private sector contributed 37.5% of Canada’s GDP. With a 14.4% contribution from medium-sized companies, the total percentage of the GDP was 51.9%.
53.6% of Companies With Less Than 20 Employees Have Seen Their Revenues Decrease
In 2021, 53.6% of small businesses in Canada reported lower revenues than in 2019. They were hit hard by the pandemic as an increasing number of people did their shopping online. The closure of restaurants and other service industry businesses was also hard on small businesses seeing that almost 80% of Canadian small businesses are in that sector.
How Do Small Businesses in Canada Feel About The Future?
According to the Government of Canada, the number of businesses in Canada increased every year between 2001 and 2019. The only expectations have been 2013 and 2016 when more businesses closed than were created. On average, between 2015 and 2019, 101,324 businesses were created and 90,151 disappeared each year in Canada.
Considering the high number of businesses that disappear each year, how do small Canadian businesses feel about the future?
Almost a Third of Small Businesses in Canada do Not Have an Optimistic Outlook
When owners of small businesses in Canada were asked about their future outlook, 82% of companies with 20-100 employees felt optimistic but only 68.7% of companies with less than 20 employees had a positive outlook.
The smallest companies were also least optimistic about their profitability with 35.6% expecting it to go down. Again, small companies with 20-100 staff members were slightly more optimistic, with 28.9% expecting profitability to fall.
The Smallest Businesses Are The Least Likely to Expect Sales to Improve
Canadian businesses employing less than twenty people are the least optimistic about future sales. 18.4% of the companies expect their sales to fall rather than increase a study by Statistics Canada found. Small companies with twenty or more employees are a little more optimistic with only 10% expecting their sales to fall.
Small Local Businesses Are The Least Likely to Get External Financing
Following the pandemic, many businesses have had to take on additional loans to survive. By 2022 many small companies were at a point where they could not get more external financing. The situation was worst for companies with less than twenty members of staff with 26.9% of them not being able to borrow more, while 16.7% of companies with 20-100 staff had reached their borrowing limit.
Small Businesses Are Struggling to Maintain Cash Flow
Not only are small businesses, with up to twenty members of staff, struggling with getting more financing to stay in business, but 22.9% of them expect issues with maintaining their cash flow. However, in 2022, 75.8% said they still had enough cash or other assets to keep operating.
Less Than 20% of Small Businesses Expected to Need More Staff in 2022
It is hardly surprising, considering how many small businesses do not view the future in a favourable light, that many of them were not planning to employ more staff in 2022. Only 19.85% of all small businesses expected to need more staff in 2022. The figure was higher for companies between 20 and 100 staff members at 27.8%, while it was only 11.9% for companies employing less than 20 people.
Small Business Failure Rates
The fact is that starting a business is challenging and many small businesses do not survive their first year. Below we have gathered information on small business failure rates in Canada and why so many small businesses fail.
Over 1/5 of Small Businesses Fail Within Their First Year
Data on new small businesses show that 21.5% of small businesses fold before the end of their first year. About 50% of small businesses survive for five years and a third get to celebrate ten years in business. However, there is good news for entrepreneurs as the failure rate has fallen by 30% since the late 1970s.
What Are The Biggest Challenges For Small Businesses?
According to Guidant Financial, 33% of small business owners say their biggest challenge is generating enough cash flow to keep going. Marketing, time management, and administrative work are also factors that many new entrepreneurs find challenging.
Why Small Businesses Fail
Many things contribute to the success or failure of a company. The most common factor is the failure to research the market before starting a business. According to CB Insights, 42% of small businesses fail because they have not researched the market and are selling a service or a product that customers are not interested in.
29% of small companies have to close because they run out of money and 67% of small business owners are using personal funds to try to keep the business running, which is not a strategy that can be applied in the long term.
Other reasons that contribute include not having the right team (23%), being out-preformed by their competition (19%), pricing issues (18%), ignoring the customers’ needs (14%), lack of focus (13%), and failure to make necessary changes (7%).
What Small Business Owners See as Important to Survival?
One of the key factors for survival is spending time away from work. 58% of small business owners believe having a healthy work-life balance is crucial for the long-term survival of their business.
Many small businesses also believe that having the right and up-to-date technology is important, with 86% of small companies investing in technology. 49% are using mobile apps to connect with their customers, while 32% of the companies offer a mobile payment option.
Small businesses in Canada are vital to the country’s economy with 98% of all businesses classified as small or micro businesses. Together with medium-sized companies, they contribute over half of the country’s GDP.
Even though 73.9% of small companies in Canada employ less than ten people, the combined employment contribution of small businesses is significant with 10.3 million Canadians working for small companies.
Canadian companies with less than twenty members of staff are the least likely to have an optimistic view about their future or to expect their sales to increase. They are also the most likely to worry about their cash flow or to seek external financing.
Despite the failure rates for small businesses having fallen since the 1970s, many small businesses still do not reach the end of their first year in business, and only a third stay operational for ten years. While many factors combine to contribute to the failure of a business, the main reason is the lack of preparation and getting to know the market first.
Frequently Asked Questions
78.5% of small businesses make it through their first year. Approximately 50% are still operational after five years and a third after ten.
While there are different ways to define a small company in Canada, the most straightforward way is to look at the number of employees. Companies with less than a hundred members of staff are considered small businesses in Canada.
There are several factors that contribute to the failure of small businesses including insufficient cash flow, pricing issues, and lack of focus. However, the main reason is the lack of research and offering a product or a service there is no market for.