Entrepreneurship is on the decline in Canada. It is running out of steam in Quebec.
The results of a study led by the Business Development Bank of Canada (BDC) based on a survey of 1,250 entrepreneurs show a decline in the pool of business owners. The number is big.
In 2022, only 1.3 people in 1000 have launched a new business, compared to 3 in 1000 in the year 2000. To this drain of new entrepreneurs, we must add people who own an established business, but who are leaving the entrepreneurship. About one in three owners will close their business within the first five years of business, and two in three will do so within the next fifteen years. As a result, the entire pool of entrepreneurs in Canada has declined by nearly 100,000 people over the past twenty years, the study highlights.
There are several explanations behind the phenomenon: the aging of the population, the strength of the job market making it easier to obtain a well-paid job and the flexibility offered by teleworking. “More flexible working conditions and higher wages make it more expensive to start a business,” summarizes the study. Added to this is a more austere business environment: “Labor shortages, technological disruptions and rising costs are creating a more complex business environment, where it is more difficult for small businesses to competition with the larger ones. »
Not to mention that the average size of companies has increased, which has the consequences of increasing industrial concentration and making it more difficult for start-ups to penetrate certain markets, it is stated.
Shortness of breath in Quebec
Quebec is no exception. The SME Research Institute of the University of Quebec at Trois-Rivières (UQTR) published on October 18 the tenth edition of the annual Global Entrepreneurship Monitor (GEM) survey. It shows that Quebec entrepreneurial activity ran out of steam in 2022. The rate of established entrepreneurs among the adult population, at 3% in Quebec compared to 7.2% for the rest of Canada, has never reached a level that low. “This decline in established entrepreneurship now places the province among the three weakest OECD regions participating in the study. »
It is also measured that entrepreneurial exits with definitive cessation of company activities are also increasing in Quebec, reaching a rate of 5.1%, the highest in the last ten years.
The researchers’ findings are the same. Tightening labor market, rising pay and aging of established entrepreneurs.
Even more gloomy, the GEM results indicate that the rate of emerging entrepreneurship – an indicator considered a flagship index of entrepreneurial activity – has decreased in our country by 2.9%. This decline “is mainly caused by the drop in new entrepreneurs which reached 8.5% this year, compared to 10.9% in 2021”.
Focusing his gaze upstream, on the worker autonomous, Cynthia Leach, deputy chief economist at the Royal Bank, observes that the uncertainty linked to the pandemic, the strength of the job market and the surge in inflation have only accelerated a strong downward trend of the rate of these workers in recent decades. And this decline especially affects those who could contribute the most to entrepreneurship, which has become less and less interesting. In his view, as the population ages, the more small business owners retire, the fewer new businesses there will be to replace them.
In the shorter term, an economic situation dominated by a drop in demand and an increase in rents, capital costs and wages complicates the lives of many SMEs. Longer term, structural labor shortages are expected to support growth in wages and benefits over the next decade, making paid work a relatively more attractive option, and more under the influence of high cost of living and accessibility to property.
But takeover is gaining ground
Behind this cold portrait, however, lies a dynamism associated with repreneurship, which is gaining ground in Quebec. Perhaps the BDC’s observation that a third of new businesses close within five years of founding has something to do with it. “For five years, the proportion of new and established entrepreneurs who enter business through entrepreneurship has increased steadily, unlike the rest of Canada, where the rate has stagnated. This trend indicates that there are enough profitable companies created to generate substantial interest among potential buyers,” indicates the UQTR. But will the interest be there, in sufficient numbers?
It is to be hoped. It has already been written that the world of entrepreneurship must prepare to be swept away by a major wave of business sales in the next ten years. Entrepreneurship will therefore be fashionable… in a more austere environment. In January, a new report from the Canadian Federation of Independent Business spoke of more than $2 trillion in business assets potentially changing hands, with 76% of small business owners planning to pass the baton within 10 years.