Unveiling the Portrait of Small Businesses in Canada: Insights and Challenges

While the importance of small businesses to Canada’s economy is undeniable — there are 1.3 million of them employing over 11 million people — there is still a lot that remains unknown about them. A Portrait of Small Business in Canada: Adaption, Agility, All at Once provides a unique picture of Canadian small business — one that breaks down who owns these businesses, their age, geography, and industry as well as dissecting some of the challenges small businesses are facing as they look to grow in a complex economy.

Using novel data and research, including custom tabulations from Statistics Canada, Environics Analytics and public sources, the report explores three questions:

• What is the current state of small business in Canada?
• How is the small business context evolving?
• How can small businesses be better positioned to thrive in this rapidly changing environment?

The Current State of Small Business in Canada

Despite representing 98% of Canadian businesses and employing two-thirds of the Canadian economy, the portrait of small business remains largely murky. In this report, BDL created three more detailed subcategories of small businesses (micro, scale and mature), revealing that the experiences of small businesses vary significantly.

• Micro: businesses with 1-4 employees. The most common type of firm, representing 57% of businesses in Canada.
• Scale: businesses with 5-19 employees and representing 30% of Canadian business.
• Mature: businesses with 20-99 employees and representing 11% of Canadian business.

If all businesses in Canada were sorted by employment size, the median firm would have fewer than five employees, underscoring the importance of improving our understanding of the business realities of all small firms, but especially micro.

Geography

The bulk of small businesses are in the four most populous provinces — Ontario, Quebec, British Columbia and Alberta — however, adjusting for vast population differences, there are proportionately more businesses located in Yukon, Prince Edward Island and Western Canada.

Sector

Nearly half of all small business are in the following four industries: professional, scientific, and technical services; construction; retail trade; and health care and social assistance.

Ownership

Among the traditionally underrepresented groups, women have the largest gap in business ownership relative to their population share. There are also significant ownership gaps for persons with disabilities, visible minorities and Indigenous persons. Immigrants to Canada are the only equity-seeking group with a more-than-proportional representation of business owners.

Examining trends in ownership allows us to better formulate a picture of how much work is needed to develop a truly inclusive and representative landscape of small businesses in Canada.

The Smaller the Business, the Bigger the Problems

During the pandemic, small businesses had slower business and employment growth, were more likely to face significant revenue declines and debt constraints, as well as difficulties adopting new technologies. These challenges not only continue to haunt small businesses, but further hamper their ability to cope with tumultuous economic conditions.

Slower Business Growth

Compared with pre-pandemic conditions in December 2019, the number of small businesses in Canada increased by only 2.9% while the number of large firms increased by 7.3% and medium firms increased by 5%.  

Weaker Employment

Small businesses were hit hardest by unemployment and were the slowest to recover, though compared to pre-pandemic conditions, the percentage change in employment has essentially remained the same.

Decreased Revenue, Increased Business Debt

Small businesses were almost twice as likely to have experienced a drop in revenue in 2020 compared with medium and large firms and pandemic debt increases were more common for small businesses and those owned by underrepresented groups. These same groups were also more likely to report that their business could not take on additional debt. Debt constraints have consistently been a bigger concern for micro and scale businesses.

Going Digital

New technologies and the widespread use of social media are altering how businesses connect with consumers. The report emphasizes the challenge businesses face today as they are expected to meet consumers’ desire for personalized online interactions, while, in many cases, maintaining physical store locations. 

Further driving home the importance of having an enticing online commercial presence, 83% of Canadian retail shoppers reported they conduct online research before they visit a store, and 8% shopped online from a retailer with a physical location nearby. By investing in their online presence and visibility, maintaining accurate and engaging digital information, and actively managing and growing their online reputations doing so, small retail businesses could effectively capture the attention of potential customers during the research phase of purchasing, and ultimately drive more foot traffic to their stores and boost sales in both digital and physical domains.

Future of Small Business in Canada

Small businesses are a major contributor to Canada’s economy, but they are also often more vulnerable to economic downturns and technological shocks — both of which are a constant in our world. Amidst this reality, demands on small businesses to adapt and innovate alongside Canada’s wider green and digital transitions will only intensify. Ensuring that adequate financial, operational and regulatory support measures boost the resilience of small businesses — especially micro and scale — is critical.

The lessons learned from analyzing the data in this report reiterate how government support is fundamental to the survival of small business and to ensuring their inclusive recovery and growth.

For more insights on the state of small business in Canada, read the full report.