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The State of Entrepreneurship in Canada

6. Profile of Small and Medium-Sized Enterprise Owners and how they Finance their Businesses

Because important entrepreneurial activity in Canada is carried out by small and medium-sized enterprises, this report provides a profile of the characteristics of these firms and their owners. A first basic question to ask is how business ownership is changing among Canadians. Table 5 below shows that in 2003 over one in 20 working Canadians (5.5 percent) was self-employed and had an incorporated business. By 2008, 6.3 percent of working Canadians were self-employed with an incorporated business, which is an increase of 15 percent. While there are a lower number of women business owners compared with men, there has been a larger increase in the number of women business owners over this five-year period: an increase of 17.2 percent for women compared with an increase of 12.8 percent for men.

Equivalent figures for the U.S. are available only for 2003, and are also shown in Table 5. Compared with working Americans, a larger percentage of working Canadians were self-employed and had an incorporated business. In total, and for both men and women, the figures for Canada are approximately one-and-a-half times those for the U.S.

6.1 The Demographics of Canadian Small and Medium-Sized Enterprise Owners

The following six tables provide a snapshot of Canadian SME owners with respect to their gender, education, age and experience, diversity, wealth and how they acquired their business.

Gender

Table 6 shows the percent of Canadian SMEs that were fully or partially owned by a woman in 2004 and 2007. The numbers for the two years are quite similar, although there is a slight decrease in female ownership in 2007. In both years, 35–37 percent of SMEs are half- or majority-owned (50 percent or more) by a woman. This is significantly higher than in the United Kingdom where a similar study showed that in 2004 only 25 percent of SMEs were 50 percent or more owned by women.^{Footnote 28}

Education

Over the ten-year period from 1997 to 2007, Canadian business owners have higher education levels, as shown in Table 7. The proportion of college and university graduates has increased — from 58 percent of the incorporated self employed with paid help in 1997 to 63 percent in 2007. This is a promising trend because people with more education tend to be better able to recognize and pursue opportunities. As a result, they tend to start more businesses^{Footnote 29} and their businesses tend to perform better.^{Footnote 30}

Age and Experience

Over the period 2004 to 2007, there has been an increase in the age and the experience of Canadian SME owners, particular those over 50 years and those with more than 5 years experience, as shown in Table 8. This trend reflects the aging of the Canadian population as a whole. It suggests that over the next 10–15 years a substantial proportion of current business owners will be seeking retirement and want to transfer business ownership to family members or outside purchasers. Succession planning is therefore an issue for many business owners, and the evidence suggests that the majority do not have a plan in place. For example, a 2006 study by the Canadian Federation of Independent Business indicates that only 10 percent of SME owners have a formal, written succession plan; 38 percent have an informal, unwritten plan and the remaining 52 percent do not have any succession plan at all.^{Footnote 31}

Diversity

Over the period 2004 to 2007, aboriginal persons, people from visible minorities and recent immigrants have become the majority owners of a larger proportion of Canadian SMEs, as shown in Table 9. This trend is also reflected in the increase in the percentage of business owners whose first language is not English or French. However, there has been a decrease in the proportion of Canadian SMEs majority-owned by a person with a disability over this three-year period.

Wealth of business owner

Canadian SME owners with larger businesses tend to be wealthier. Table 10 shows, for five different categories of firm size, the proportion of SMEs owners in each net worth category, in 2007.

How the business was acquired

Three-quarters of Canadian SME owners started their business from scratch, rather than acquiring it from a family member or from someone outside their family. As Table 11 indicates, this proportion has changed little between 2004 and 2007. However, although fewer than 10 percent of business owners acquired the business from a family member, past research has found a strong family influence on self-employment. Having parents who are self-employed can provide financial capital to start a business, but more significantly, such a family background provides business skills that are important even when the business is in a different industry than that of the parents.^{Footnote 32}

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