REIMAGINING THE ACCOUNTING PROFESSION
UNDERSTANDING CANADA’s PRIVATE SECTOR
Rob Farrow, SBA, CPA, CGA
Whether we’re in business and simply trying to understand our market, or in government attempting to develop policy, we need to rely on good statistical information to frame our thinking. As a CPA in practice, I have been struck by the differences in approach between BC STATS (my local provincial government agency) and STATISTICS CANADA.
In particular – since my practice is small, my focus is primarily on small business. That starts with an understanding of what small business is. Every year BC STATS issues a publication called SMALL BUSINESS PROFILES.
BC Stats is the provincial government’s leader in statistical and economic research, information and analysis. We can help you increase overall business performance by providing the information you need to make effective decisions.
A few things are immediately apparent about BC STATS approach:
A recognition of the importance of the self-employed
There is no category of medium business
The cut-off between large and small business is much lower (a business with 50 employees is considered a LARGE business)
Every year they publish BC SMALL BUSINESS PROFILE – we encourage accountants and business owners to get a copy…
“SMEs play an essential role in employing Canadians across the country. On the provincial level, the percentage of private sector employment in SMEs is highest in Newfoundland and Labrador and Prince Edward Island at 94.0 percent and 93.9 percent respectively (Table 4). This percentage is lowest in Quebec and Ontario at 87.4 percent and 88.3 percent respectively. Total private sector employment in Ontario and Quebec amounts to 7,426,100 jobs, which represents more than 60 percent of Canadian private sector employment.” – STATISTICS CANADA“
In contrast with BC STATS which highlights the importance of the self-employed and small business generally, STATISTICS CANADA talks of the importance of medium-sized businesses – and how private sector employment in Ontario and Quebec amounts to more than 60% of Canadian private sector employment.
STATISTICS CANADA talks in an almost disparaging way of “micro businesses” (firms with 4 or fewer employees). The problem is that taken as a whole, the self-employed and these micro businesses account for more employment than all of Canada’s large and mid-size businesses combined (24.57% vs 24.44%) by our estimates.
Admittedly income levels are much lower for those employed by these ‘micro businesses’ – but surely that should be a priority for policymakers. Particularly for a government keen to represent the middle class and those struggling to join it.
What is behind this apparent bias on the part of STATISTICS CANADA?
Is it an attempt to justify a policy focus on SMEs in Central Canada? Certainly it is easier to focus politicians’ glad-handing efforts on a few mid-sized companies surrounding the national capital region.
Or is it simply that focusing on larger entities feeds the self-importance of bureaucrats studying the issue?
Throughout Canada there are likely only about 59,325 firms that have more than 50 employees. They average 99.5 employees. (Note: that average does not even make the cut as a medium-sized business according to STATISTICS CANADA)
By framing the data this way, it becomes clear that the vast majority of Canada’s businesses are small – in fact they are very small. More than 95% of businesses average about 5 employees – and that is only if we ignore the self-employed. To be fair BC STATS mostly uses STATSCAN data – they merely frame it differently.
Note that – for purposes of this article we had to break apart data for the number of employees by entity size which STATISTICS CANADA aggregates as follows:
In order to dis-aggregate the federal employment numbers we used BC STATS “Employed by small business” percentage of 32%. It also became apparent that for each size of entity, the distribution was heavily skewed towards the bottom of the range. In BC the 190,400 small businesses employed on average 3.4 persons – although the top of the range was 49 employees.
Small business is not only much more important than most federal bureaucrats – or the business press – recognizes, it is also MUCH smaller. If instead of BC STATS you rely on STATISTICS CANADA’s own definition of small business (i.e. less than 100 employees), the average number of employees in Canada’s 1.2 million small businesses is 9.07 – excluding the self-employed. If you include the self-employed, the average number of employed and self-employed drops to 3.64 persons per business.
In management science, Peter Drucker is credited with saying that “if you can’t measure it, you can’t manage it”.
Clearly there is a bias among a great many academics, the business press and bureaucrats against small business. It leads to bad decisions in business and in public policy. It also leads to fuzzy advice from many so-called experts.