Canada’s economy relies on the little guy: 97.9% of all businesses in Canada are considered ‘small’, having fewer than 100 employees, and these employ 62.3% of the entire workforce. These businesses also account for more than half of the country’s GDP. So it’s no exaggeration to say that the success of Canadian small businesses is paramount to the success of the country.
But there has been a lot of economic and geopolitical turbulence in recent years, threatening these small businesses, and in some cases providing opportunities to thrive. Keeping track of the ever-changing landscape is key to avoiding the former while capitalizing on the latter. So here we’re going to delve into the most important issues, trends, challenges and opportunities facing Canadian small business owners in 2024, starting with the state of these businesses as they stand.
Where Are We Now?
The majority of Canada’s businesses are small, but within that basic definition (meaning fewer than 100 employees), there is quite a lot of scope. 57% of Canadian small businesses have fewer than 5 employees. And as you can imagine, the challenges and opportunities seen by a business of 4 people can be quite different to those seen by a business of 90 people. So when we talk about Canada’s small businesses, we need to be aware of this range, and know that the majority of private small businesses in Canada have just a handful of employees.
This isn’t uniform across industries though; in fact, the size of business is heavily dictated by industry. Nearly half of all small businesses in Canada are in just four sectors: professional, scientific and technical services; construction; retail trade; and health care and social assistance.
In addition, there are geographic variations. While Ontario, B.C., Alberta and Quebec are home to the most small businesses, on a per capita basis the picture looks very different. There are disproportionately more small businesses in Western Canada and the Territories than elsewhere in the country.
So now we know how many small businesses there are in Canada, where they are, and which industries they’re in. But how are they doing?
Major Challenges for Small Businesses in 2024
Research shows that the smaller the company is, the bigger the problems it faces, and this was especially true during the pandemic. Unfortunately, many of these problems have persisted even with the lifting of pandemic-related restrictions, leading to continued slow business growth for small companies through 2023 and 2024. Small businesses are still seeing lower revenues, higher debt loads and weaker employment figures – despite medium and large businesses recovering more quickly.
More than any other, businesses cite two major challenges to their operations in 2024: financing, and labour.
65% of businesses are still dealing with pandemic-related debt – at an average level of $108,000. This, plus higher interest rates, means that many young and/or very small businesses are unable to take on more debt this year, regardless of whether they need to. This leads to financial strain which some will not be able to survive.
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The second issue is evident across industries and business size, but has a disproportionate effect on small businesses. Labour shortages are leading to operational challenges, reduced business hours, and in some cases declined contracts. This all leads to higher labour costs and has lost Canadian small businesses over $38 billion in revenue.
These aren’t the only challenges facing Canadian small businesses. Inflation, tax burdens, economic uncertainty, demand, and supply chain issues are all also prevalent; but despite all this, business owners are overwhelmingly optimistic.
A Look At Business Owners’ Perception
73% of Canada’s small business owners predict revenue growth in 2024. That’s quite the majority given the challenges discussed above. So what’s behind this positivity?
Context may help; 54% of business owners say their businesses are in better shape now than they were at the start of 2023. 74% increased the price of at least one service or product, and 57% introduced at least one new service or product in 2023. And in 2024, these numbers are anticipated to be 70% and 61% respectively – showing an overall increase in business development. A further 46% plan on entering a new strategic partnership in 2024, and 58% plan to hire more staff. So while times are tricky, many small business owners are using the opportunity to pivot and grow their business in new ways.
Major Trends for Small Businesses in 2024
There are a number of ways Canadian business owners can adapt to changing consumer and economic needs and capitalize on new opportunities. Being aware of the most prevalent and popular trends is key to choosing which to tackle. Here’s what’s shaping up in the second half of 2024 and beyond for Canadian small businesses:
A Continued Drive To Online
83% of Canadian retail shoppers do online research before visiting a store. And over 5% of all retail sales in the country occur entirely online. The level of online shopping post-pandemic has not fallen to pre-pandemic levels, so businesses with user-friendly digital platforms – especially mobile compatible – are capturing more revenue than those without.
This is true of marketing as well; consumers increasingly expect digital marketing tools and promotions and 70% favour companies offering them over those who prioritize physical or in-person strategies.
Digital Improvements Across Operations
It’s not just about improving or expanding the sales experience; digital transformation can occur across all aspects of a business, and more than half of small businesses who have implemented digital changes note that they improved profitability. Collaboration tools, supply chain optimization, cloud computing, security measures and task automation can all significantly improve operations, and those failing to exploit the advantages of new technologies risk becoming obsolete.
The adoption of new technologies isn’t happening evenly across businesses though; different industries, and perhaps more interestingly, different sized businesses have varying preferences. Generally speaking, the larger the firm, the more likely they are to invest in digital improvements. This is likely an effect of capability rather than desire though.
If your small business needs some help with its digital adoption, try the Canada Digital Adoption Program.
Artificial Intelligence Is Not Just For Tech Companies
Continuing the theme of technological improvements, artificial intelligence adoption persists across all aspects of business operations, and a higher proportion of small businesses plan to invest in AI than large businesses. This is perhaps because of the margins involved; 76% of companies find that AI has a positive impact on productivity, work quality and customer satisfaction, and the average increase in productivity is 31%. This can make all the difference to a small entity struggling to survive – and it need not be about expensive custom-built applications. Embedding commercially available or even specialized AI tools in existing systems is an achievable way for small businesses to benefit from the technology without the heavy investment required by proprietary systems.
If your small business needs some help harnessing AI, try the AI Assist Program from the NRC Industrial Research Assistance Program.
Sustainability Matters Everywhere
61% of consumers believe that companies should put more emphasis on the environment and sustainability; 49% believe that companies must reduce their environmental impact, even if it means charging higher prices; and 56% have stopped buying from companies whose business practices they don’t agree with.
Small businesses are driven by sales, so understanding that sustainability is now a decision-critical factor for many consumers is key to a business aligning with their needs. What this looks like practically depends on the industry, but failure to appreciate the scale of this driver in consumer behaviour will only lead to future revenue decline.
Don’t Ignore DEI
Diversity, equity and inclusion (DEI) is, like sustainability, a growing decision-critical factor in consumer behaviour. 53% of Gen Z consumers want proof of how companies are acting on DEI, and they can get the data they need to make informed decisions. For example, several provinces have passed pay transparency legislation aimed at promoting pay equity. This affects labour too, as job applicants are more able to determine a business’s DEI practices and thereby choose one that matches their priorities.
Creating and adopting a DEI strategy may seem onerous for small businesses, but there are resources available to help. Check out the Business Development Bank of Canada’s DEI toolkit as a place to start.
Payment Methods Are Changing
There has been a flurry of new payment methods in recent years, and businesses need to understand which are preferred in order to retain business. Those that have gained ground in Canada include mobile wallet, contactless credit card, and buy-now-pay-later. But consider: 88.1% of Canadians have smartphones, but only 51% of businesses accept mobile wallet payments. Among those businesses that do accept them, mobile wallets make up nearly half (47%) of all received payments. Clearly, the capacity to accept the payment methods preferred by consumers is crucial to competitiveness.
A compounding factor here is payment processing fees. 79% of small business owners state the cost of accepting credit card payments is unsustainable, and transaction fees across platforms and vendors are coming under scrutiny. 86% of business owners say they are open to switching their payment vendor. This, combined with novel payment methods, means businesses need to consider both consumer and operational needs when choosing their future payment systems.
An Aging Population Means More Acquisitions
Here’s an astonishing fact: about 10% of small businesses in Canada will be sold to external parties by 2025 thanks to retiring business owners. This will heavily impact the acquisitions market; and as businesses that grow through acquisition are twice as likely to experience above-average sales growth as businesses who grow organically, this presents a unique opportunity.
Economic realities must be met though, and funding an acquisition via traditional debt is not perceived to be the smartest move right now. Alternative financing options that mitigate the impact of high interest rates is preferable for those hoping to grow their business while avoiding financial risk.
The Bottom Line
While many experts believe the economic volatility of the past few years is largely behind us, for any small business to continue to survive in our changing world it needs to prioritize adaptability. The speed with which new technologies, new consumer priorities and new challenges can emerge mean that small businesses who remain nimble have a much greater chance of success.
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