The Business Development Institute

Realities: The Nature Of Small Business

What Does Small Business Have To Do With Entrepreneurship? A small business is the usual product of entrepreneurship.
Can a person start a large business? Statistics show that only approximately 4% of businesses employ over 20 people at start-up.
Over half of business start-ups consist of 1 or 2 employees.

independent management,
closely-held ownership,
a primarily local area of operations,
and a scale that is small in comparison with competitors.

Why do people start small businesses? The most frequently cited motivation for business start-ups is to allow the entrepreneur to achieve independence; money is secondary.

Is this surprising? The other reasons named most often are that an opportunity presented itself, a person took over the family business, or the person simply wanted to be an entrepreneur. It is important to identify your motivation.

It has fewer employees, usually less than 100. Most small businesses are run by one or several owner/managers with skills in one or two specific areas.

Small business owners tend to keep a tight rein on their businesses. They rarely hire or consult with professionals in those areas where they lack expertise, such as accounting, finance, sales, marketing or personnel management. Along with the lack of business management skills, this is the main reason why so many small businesses fail.

Governments on the other hand, recognizing the role of small business in the economy, do establish quantitative criteria on business size.

Business Size

The following is some statistical data concerning the Small Business Sector. Clearly most of you who are at this site, are either part of the population that participate in that sector of the economy, or who might be interested in starting a business.

The government has said on numerous occasions, that the small business sector drives the economy in terms of job creation. The statistics do support that assertion.

Based on Statistics Canada report, ”Key Small Business Statistics”, 49% of the private workforce was employed by small businesses ( less than 100 employees).*

In the United States in 1999-2000 (according to the most recent data), small businesses created three-quarters of U.S. net new jobs (2.5 million of the 3.4 million total).

Source: Statistics Canada, Survey of Employment, Payrolls and Hours (SEPH), January 2002, and calculations by Industry Canada. Industry data are classified in accordance with Statistics Canada’s NAICS.

Note1: SEPH data exclude self-employed workers who are not on a payroll, and employees in the following industries: agriculture, fishing and trapping, private household services, religious organizations and military personnel of defence services. The data breaking down employment by size of firm also exclude unclassified industries. *these figures do not include the indeterminate category as identified in the Business Register

The size of a business can be defined in many ways, by the value of its annual sales or shipments, for example, or by its annual gross or net revenue, the size of its assets, or the number of its employees.

Industry Canada has a criteria for defining businesses that fall in to the category of “small” or “medium-sized”, and depending on whether the businesses are in the service or manufacturing sector.

In services, a small business has up to 50 employees, and a medium one has between 50 and 300 hundred employees

In manufacturing, a small business employs up to 100, while a medium manufacture can employ as many as 500.

small businesses are usually defined as businesses with annual revenues of up to $5 million, while medium –sized enterprises earn up to $25 million in annual revenues.

Successful SME’s have been found to place a high value on good management practices and well-trained employers, pursue new markets with vigor, and innovate constantly with respect to products, practices and managements.

The Small Business Administration bureau in the United States employs a range of standards with certain exceptions. However a summary is herein provided to give a relative comparison to Industry Canada’s definitions.

500 employees for most manufacturing and mining industries and $5.0 million in average annual receipts for most non-manufacturing industries.

Construction - General building and heavy construction contractors have a size standard of $17 million in average annual receipts. Special trade construction contractors have a size standard of $7 million.

Manufacturing - For approximately 75 percent of the manufacturing industries, the size standard is 500 employees. A small number have a 1,500employee size standard and the balance have a size standard of either 750 or 1,000 employees.

Mining - All mining industries, except mining services, have a size standard of 500 employees.

Retail Trade - Most retail trade industries have a size standard of $5 million in average annual receipts. A few, such as grocery stores, department stores, motor vehicle dealers and electrical appliance dealers, have higher size standards. None are above $21 million.

Services - For the service industries, the most common size standard is $5 million in average annual receipts. Computer programming, data processing and systems design have a size standard of $18 million. Engineering and architectural services have different size standards, as do a few other service industries. The highest annual receipts size standard in any service industry is $21.5 million. Research and development and environmental remediation services are the only service industries with a size standard stated in number of employees.

Wholesale Trade - For all wholesale trade industries, a size standard of 100 employees is applicable for loans and other financial programs.

Other Industries - Other industry divisions include: Agriculture; transportation, communications, electric, gas, and sanitary services; and finance, insurance and real estate. Because of wide variation in the industry structure of the industries in these divisions, there is no common pattern of size standards.