Investment, tax, and lifestyle perspectives from RBC Wealth Management Services
While modest in size, small enterprises within Canada prove large in impact.
Over recent decades, changing times and economies, advancements in technologies and transitions in population demographics have created far-reaching shifts in many businesses. Within the product and services industries, these changes include how some companies operate, the channels through which they conduct business and the types of businesses that exist. But amidst these changes, there’s one aspect that remains constant: small enterprises have a stronghold across our nation.
Small businesses are a foundational pillar within Canada, representing 1.14 million of the total 1.17 million employer businesses as of December 2015. Breaking down the three main size groupings as percentages, small enterprises account for an impressive 97.9 percent, while medium-sized ones represent 1.8 percent and large businesses account for 0.3 percent.1 To be categorized as a small business, an enterprise must employ anywhere between one and 99 individuals, but what’s amazing within the overall statistics is that of all small businesses, 73.5 percent have fewer than 10 employees.2 And while these enterprises are well-represented throughout a wide range of sectors, the top-three industries are retail trade; construction; and professional, scientific and technical services.3 Additionally, recent findings indicate female entrepreneurs are gaining ground, as one-third of all small businesses are led by women.4
From a value and impact perspective, small enterprises need to be recognized for the contributions they make to our society and economy at community, provincial and national levels. After all, these businesses provide work for 8.2 million Canadians in the private sector, which equates to 70.5 percent of private sector employment.5 From an output perspective, they collectively contribute to over 30 percent of Canada’s gross domestic product (GDP), and have consistently contributed to over one-quarter of the country’s GDP through their activities over the last 10 years.6 The annual celebration of Small Business Week in October (this year taking place the week of October 16 to 22) highlights small enterprises as a cornerstone in Canada. This year marks the 37th anniversary of Small Business Week, where over 10,000 business owners and professionals come together at over 300 events across the country.7 Beyond the awareness and appreciation through initiatives such as this, however, another key focus is helping ensure business owners have access to appropriate information and planning elements that will enable them to grow and achieve ongoing success.
For business owners, year-end marks an important time from a tax perspective. Those who own a business may want to consider the following strategies.
Canada is strongly represented by family-owned businesses, with approximately 80 percent of all employer enterprises having family ownership (this ranges from small-scale companies all the way to large corporations such as Bombardier Inc. and Saputo Inc.).8 The unfortunate reality, however, is that many of these businesses begin to falter when it comes time to pass them from one generation to the next. In fact, it’s estimated that 70 percent of family businesses won’t succeed through the second generation, and a more shocking 90 percent won’t make it through the third generation.9 And the reason? The majority of these failures occur due to a lack of succession planning. While statistics indicate that approximately 50 percent do have some sort of informal plan or ideas in mind, only 17 percent have actually formalized their succession plans.10
For those who own or are involved in a family business, communication around family values and intentions is such an important element in effective succession planning. Defining founding family principles as they relate to the business, and then ensuring there’s ongoing open dialogue among everyone involved, will help set the stage for putting firm plans in place. From there, seeking help from qualified professional advisors at a full-service firm may be very beneficial to align business objectives with the right planning approaches, while ensuring family values and individual priorities are upheld.
For information and resources on business succession planning in Canada, please contact your RBC advisor or Find a wealth advisor on the RBC Wealth Management site. Additionally, learn more about RBC Wealth Management’s award-winning approach to business planning by watching one of our client testimonial videos.
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