Is Canada facing a future with fewer small business owners?

RBC thought leader says succession plans are hard to find among SME owners and self-employment is declining

Is Canada facing a future with fewer small business owners?
Steve Randall

Canada’s small and medium sized business are often referred to as the ‘backbone’ of the Canadian economy, but are we facing a future with this central core reduced?

A new thought leadership article from RBC assistant chief economist Cynthia Leach muses some of the challenging trends for the SME landscape and concludes that “entrepreneurship is becoming less enticing for Canadians.”

While the most recent labour market data from Statistics Canada showed an increase of 50,000 self-employed people (a 1.9% increase month-over-month) this was the first notable rise in nine months and the long-term self-employment rate has accelerated its decline in recent years.

Leach notes that the biggest pullback from self-employment is among businesses with paid help, which is particularly out of favour among younger workers.

While 13% of Canadian workers were self-employed in 2022, just 4% had employees. The share of those with paid help among the self-employed has declined from 34% in 1998 to 27% at current.

The stronger labour market with growing wages has impacted self-employment. For many, working for an employer pays better while flexible working offers some of the benefits that were generally only available to those who were their own boss.

Data from Statistics Canada and RBC Economics shows that self-employed Canadians earned 59 cents for every dollar earned by an employee in 2022.

Succession planning

Another issue for Canada’s SMEs is an ageing population of business owners.

With Boomers retiring and just 9% of business owners having a written succession plan in place, Leach says that Canada is headed towards a higher rate of business exits, and asks whether there are enough nascent businesses to take their place.

Despite strong immigration growth, with immigrants having a slightly higher propensity for self-employment, this will not compensate fully for the decline in business formation among younger workers.

And things are not likely to change, except for perhaps short term.

Even as tough economic conditions may see rising unemployment and a related rise in self-employment, these new entrepreneurs may find the current business environment challenging, while labour shortages longer term will keep wage increases buoyant.