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Small Business in
Calgary: Challenges
and Opportunities
1
Calgary is Canada’s
Small Business Capital
Small to medium sized businesses
(SMEs) are of particular importance
to Calgary’s economy because almost
95 percent of all Calgary businesses
are made up of SMEs . Calgary has
the largest concentration in Canada of
small businesses on a per capita basis
(38.8 per 1,000 population), and is also
the young entrepreneurial capital of
Canada.
Small businesses are important
to economic development. They
are job creators and drivers of our
local economy, helping to stimulate
economic growth and innovation.
Small businesses sustain nearly half
of all Canadian jobs and 30 percent
of our GDP.
Adaptability Small businesses are
flexible to challenges, since they
have small, intimate teams that can
respond quickly to changes in the
business environment.
Innovation Small businesses can
mitigate the risk of stifling innovation
through bureaucracy and process
with a less ‘set-in-stone’ structure.
L
ower Overhead Operating on a
smaller scale allows these businesses
to reduce costs in areas such as
heating, lighting, office space, and
compensation, which also results in
lower costs for clients and stimulates
business development.
Despite
these
strengths,
small
businesses face many challenges that
can make it difficult to thrive. While
Calgary is a leader in entrepreneurship
and small business ownership, there
are always areas where we can improve.
Ensuring that Calgary’s economy
continues to grow in innovation and
productivity will cement Calgary’s role
as a prominent competitor in the global
marketplace.
2
Aside from having a large population
of SMEs, Calgary’s micro-enterprises
(1-4 employees), a subset of small
business, are the city’s fastest growing
employment segment at 23.3 percent
over 10 years. In 2011, there were
112, 300 self-employed Calgarians.
For the past 10 years, Calgary has
maintained its position as the city
with the second highest total growth
in self-employment at a rate of 30.9
percent. While Calgary’s climate for
small business is relatively healthy,
the shortage of skilled labour and the
overall tax burden remain issues for
small business, both of which can affect
long-term growth.
What are some common
challenges of small business?
A survey conducted by the Chamber
this year identified some of the areas in
which small businesses are struggling.
The shortage of skilled labour is a major
issue, and some businesses feel obliged
to pass on business opportunities
because they are understaffed or may
lack human resource capacity. Some
other areas that were identified as
challenging included:
Government and taxes
The general cost of conducting
business
Growth-related problems, such
as business sustainability and
expansion, attracting new customers,
and growth management
Staffing
The Chamber’s survey revealed that
the biggest challenge that individual
businesses and business overall are
facing is finding qualified staff. Calgary
is facing a labour shortage with an
aging population and decreasing birth
rates. Alberta’s vacancy rate saw the
biggest increase from 2009 to 2013,
far exceeding the national average,
and every other province, in jobs left
unfilled (Figure 1). The shortage of
skilled labour is a major issue, and
some businesses feel obliged to pass
on business opportunities because they
are understaffed or may lack human
resource capacity. According to a CFIB
survey, the shortage of qualified labour
across Western Canada is severely
impacting the ability of entrepreneurs
and small to medium sized businesses
(SMEs) to be successful. This year,
79 percent of firms in the region
experienced difficulty in hiring for
the past three years, and 44 percent
expect the hiring process to become
increasingly difficult.
My biggest challenge has been staff!
Recruiting the right person for the job,
training, and ensuring expectations are
met. Without the right people in place
it’s difficult to grow the business and
take time off.
-Calgary Chamber Member
Impact on Business Owners
How are business owners reacting to
this? According to CFIB, one in two
business owners have raised wages to
help attract and retain labour, while
also using less traditional tactics such as
offering flexibility such as the option to
work from home and flexible working
hours, providing leased vehicles, and
retention bonuses.
A poll by CFIB identified that the top
three ways that the labour and skills
shortage has affected their businesses
are the inability for the owner to take
any time away, poor quality applicants,
and increased labour costs, which
were significantly more amplified in
the prairies than in other provinces
such as British Columbia. Other
issues include reduced productivity,
high turnover, deteriorating customer
service, higher training costs, delayed
or cancelled expansion, reduced hours
of operations, and sudden closure. 71
percent reported working longer hours
when they are unable to hire qualified
staff, and when they were able to hire,
68 percent say they were forced to
choose from poor quality applicants.
Businesses are forced to cope by
hiring candidates that are not fully
qualified for the position, which means
increased investment in training costs.
Some businesses are attempting to get
by through hiring fewer employees, or
by increasing the salaries and benefits
of the good employees they do have in
an attempt to retain them.
As a result, Alberta is leading the country
in wage growth with an increase of 16.8
percent since 2009, while the national
average of wage growth from 2009 to
2013 was 10.7 percent .
The labour shortage is not only
affecting Canadian businesses, but also
our economy as a whole: fifty percent
have ignored new business possibilities
because the lack of staff limited their
capacity to take advantage of new
growth opportunities, which could
limit small business growth in Calgary.
What can be done?
Currently, Western Canada is dependent
on overtime and delayed retirement as
a temporary fix to the labour shortage,
but this is not sustainable since
employees cannot work overtime and
delay retirement indefinitely. In order
to address long term labour issues,
it is necessary to address Calgary’s
challenges in affordability and cost of
living, as well as Calgary’s ability to tap
into underutilized labour pools such as
new Canadians and Aboriginals.
Immigration
Within the next five years, 100
percent of our new labour growth will
come from new Canadians, making
immigration policies a priority for
business in Calgary. When newcomers
arrive in Canada, they live, work,
and contribute to cities, and yet the
3
improve retention, businesses hiring
Aboriginal employees can implement
initiatives
such
as
mentorship
programs or cultural awareness to help
better integrate employees.
federal government provides most
of the support for new Canadians.
The municipality should bear greater
responsibility for integrating new
Canadians in the workforce, and make
efforts to remain an attractive option
for new labour, beyond economic
opportunities, and strive to become
more socially and culturally attractive
as well in order to retain new labour.
Affordability
Calgary has a lack of affordable housing,
making it difficult to attract and retain
labour in certain fields, including the
service industry, such as teachers and
police. Affordable housing boosts
economic development by equipping
the labour force with affordable homes
and increasing their disposable income,
meaning households spend less of their
monthly income on housing costs
and more on goods and services that
support the local economy. Without
adequate housing, Calgary will not gain
the labour it needs, and will risk falling
behind in a global economy.
It has been hard to find good, effective
trades. Quality is suffering.
-Calgary Chamber Member
Aboriginal Engagement
Calgary also has a large urban Aboriginal
population: our largest untapped source
of labour. Every year, 25,000 Aboriginal
youth in Canada become of age to
enter the labour market. This group
is an important resource in solving
the labour shortage, however their
potential is limited by education and
employment issues. While there are
many programs citywide that promote
educational and employment aid,
there is less commitment to addressing
retention of Aboriginal employees. To
Job Vacancy Rate, by Province (2009 and 2013)
7
2013
5.5
5
4.7
4
4
3.1
3
2
2009
6.1
6
3.2
2.5
2.2
2.7
4.4
3.5
2.8
2.4
3
2.8
2.1
2.7
4
3.1
2.9
1.8
1.5
1
0
NL
PEI
NS
NB
QC
ON
MN
SK
AB
BC
Figure 1 “The State of the Canadian Labour Market,” Department of Finance Canada, 2014.
4
National
Average
Government and Taxes
The Chamber survey also revealed that
Calgarians view government, taxes
and the general cost of conducting
business as other issues affecting
Calgary business overall. Competitive
tax systems help attract investment
and economic growth. Tax reform that
acknowledges the role of small business
in the health of the Canadian economy
can boost Canadian entrepreneurship.
Given the importance of small business
to Calgary’s economy, it is important
that policymakers focus on how
tax systems impact business. In the
Canadian Federation of Independent
Business’ 2013 report on small business
provincial tax, Alberta is identified
as being the overall most competitive
province, but does not top the list
in two categories: corporate income
tax and property and capital tax.
An unregulated and uneven tax rate
ratio between what businesses pay in
municipal property taxes and what
homeowners pay in property taxes
has created a gap between the taxes
that businesses pay and the services
they receive in return; businesses in
Calgary pay 4x more in property tax
than residential properties. In order
to improve competitiveness in these
categories, the province should reduce,
but not eliminate, the small business
corporate income tax rate. The City
should attempt to move away from
its overreliance on business property
taxes, while also taking steps to close
the tax rate gap between businesses
and individuals.
At a minimum of $700 per room and
an average of $1200-$1500 for a room
and a kitchen, it is very hard for an average
wage earner to live in the city and especially
for any that have dependents. It creates an
environment
of working poor.
-Calgary Chamber Member
In November and December of 2013, the
Government of Alberta engaged with
small business owners across Alberta,
producing a report on how to improve
the tax climate for businesses in the
province. From those engagement
sessions, survey respondents expressed
how the government could establish
a role as an enabler rather than an
enforcer of entrepreneurship, in
order to foster a more collaborative
relationship between government and
business through providing information
on trends in the labour market or
new export markets. Furthermore,
financial support for start-up and
entrepreneurial endeavours will help
accelerate small business in Alberta.
Alberta’s tax climate for small business
is the most competitive in the country,
but there are improvements that can
be made in order to maintain our top
position. Healthy debate continues
over the small business tax, with
some advocating for the tax to be
cut completely in order to broaden
the ability for new business and
entrepreneurs to start up. Eliminating
the small business tax completely is
risky, however, and may do more harm
than good for Calgary businesses.
Instead of removing the tax completely,
one report recommends some areas of
reform of the tax system to incentivize
small business growth. The report
argues that eliminating the tax could
create a “taxation wall” which could
result in businesses actively breaking
up into smaller, less-efficient units in
order to take advantage of tax benefits,
and encourage individuals to create
small corporations to reduce personal
tax liabilities, instead of entering
the market with the goal of business
growth. In this sense, eliminating the
small business tax hampers growth.
Instead, the report argues for a new
taxation system that encourages growth
through
incentivizing
initiatives
that increase cash flow, initiatives
such as incentives for investment
in depreciable assets, capital gains
incentive for small businesses going
public, and reducing the lock-in effect
of capital gains. Essentially, the report
advocates for policies that help small
business in overcoming economic
barriers to growth by instituting growth
incentives.
Currently, Alberta is the only province
without an incentive program aimed at
encouraging private investment in local
5
businesses that are in need of capital.
The Alberta Economic Development
Authority issued a report that ranked
Alberta as one of the least competitive
jurisdictions in terms of venture
capital investment and non-resource
export growth. In British Columbia,
the program allowed the average
company that participated to raise a
total of $2.14M of equity investment,
and for every one dollar of provincial
tax credits issued, recipient companies
generated $1.98 in provincial taxes.
By implementing a venture capital
tax credit, investment in Alberta
small business would be incentivized,
which would help address the need for
economic diversification, which is vital
to the long-term stability and growth of
the Alberta economy.
Strategic Procurement
One way that the government can
financially support small business
is through strategic procurement.
I would like to see the government offer
more incentive to enter certain industries,
and more government follow-up to ensure
people are treated well.
-Calgary Chamber Member
6
As a city struggling to address
infrastructure deficits and high
housing costs, Calgary should call on
its thriving and innovative business
community to help forge new and more
efficient solutions to its challenges by
identifying a problem and then turning
to the business community to craft
innovative solutions, allowing more
small businesses and start-ups to grow.
Consider Barcelona, who has announced
an international call for businesses and
entrepreneurs to propose solutions to
municipal problems such as bicycle
thefts, digitizing museum and archive
collections,
conducting
business
impact studies, monitoring pedestrian
flows, and empowering support
systems to reduce social isolation.
Any individual or start-up company
has a chance at winning the contract
if they provide an innovative solution.
As a city that is almost wholly made
up of small business ventures, Calgary
should capitalize on their innovation
for practical municipal solutions, while
at the same time supporting one
of the engines of our
economy.
Recommendations
Government policies alone cannot solve challenges that small businesses face.
There is a role to play by all Calgarians – citizens, educational institutions, and the
business community. Recommendations include:
Employ strategic procurement methods in order to help small Calgary businesses
secure contracts and market legitimacy, while exploring innovative solutions to
problems such as affordable housing and the labour shortage
Continue to promote entrepreneurship through reducing regulatory burdens on
SMEs and facilitating partnerships between start-ups and established business
ventures
Create a greater ability at the municipal level to support new Canadians by
equipping them with the language and cultural skills necessary to maximize their
participation in the labour force
Prioritize employment and retention of Aboriginal employees through establishing
mentorship programs and intercultural programming
Review the small business tax environment to incorporate additional growth
incentives, where appropriate
7
References
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6
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8