How many businesses appear and disappear each year?

Small Business Tips

Thousands of businesses enter and exit the marketplace throughout the year. Keeping track of these births and deaths is no easy matter. The best source is Statistics Canada's Longitudinal Employment Analysis Program (LEAP), which can be tabulated to compare businesses in a base year with those in the following year.³ If a business is observed to exist in the base year but not in the following year, it is considered an "exit" and vice versa for an "entry." Although there may be other reasons why a business cannot be found in either year,⁴ the data give a good overall picture of the turbulence (often called “churn”) of new and disappearing businesses.

LEAP data are based on payroll deduction information issued by employers (T4 slips) and therefore cover only employer businesses. The counting unit of "employee" used in these tabulations is an Individual Labour Unit (ILU), a derived unit that equates one ILU to one employee. An employee who receives one T4 slip in a year is assigned one ILU; for an employee who receives more than one T4 slip, the "unit" is distributed among issuing firms in proportion to the wages earned. However, hours of work are not accounted for, so no distinction is made between full-time and part-time workers.

The number of entries increased over the first half of the period from approximately 135 000 to a peak of 146 000 in 1996–97. After that, the number of annual entries steadily declined to the level at the beginning of the period (i.e. 135 000) before increasing slightly over the final three years. The number of exits in each year was between 130 000 and 135 000 in the early 1990s. However, once the economy stopped growing in the mid-1990s, the number of exits grew to a peak of 143 000 in 1995–96. Following that, the number of annual exits dropped, remaining at approximately 125 000 each year until 2003. On a net basis, entries averaged approximately 8800 annually from 1991 to 2003, but were near zero in 1991–92.

The number of entries increased during the early and mid-1990s, began to decline after 1996–97 and then increased after 2000–01. In contrast, the number of exits was more cyclical over these years and was negatively correlated with GDP growth. The number of net entries also appears to be negatively correlated with GDP growth. This suggests that exit and survival rates are influenced more by the business cycle than are entry rates.

Source: Statistics Canada, special tabulations of data from the Longitudinal Employment Analysis Program, 1991–92 to 2002–03; National Income and Expenditure Accounts, 1991–2003.

Bankruptcy statistics

Only a small proportion of firms that exit the marketplace end up filing for bankruptcy. On average over the last 17 years, there have been approximately 12 000 business bankruptcies per year in Canada. They gradually increased from about 11 000 in 1990 to a peak of more than 14 000 in 1996. Since then, business bankruptcies have been on the decline, to about 6700 in 2006.

More detailed statistics on business bankruptcies and the liabilities involved are regularly reported in Industry Canada's Small Business Quarterly and are also available on the website of the Office of the Superintendent of Bankruptcy at http://www.osb-bsf.gc.ca

3. Statistics Canada used to publish entry and exit data in Employment Dynamics, which was based on data from the Longitudinal Employment Analysis Program (LEAP). Employment Dynamics is no longer published, so special tabulations of the LEAP file were ordered to obtain entry and exit data. These new data are consistent with the data reported in previous issues of Key Small Business Statistics; data from LEAP and Employment Dynamics are nearly identical over the 1991–92 to 1998–99 period.

4. Reorganization in a firm may involve name changes, mergers, a division of existing payroll accounts or more. To the greatest extent possible, false signals about deaths and births are deleted from the data. A legitimate firm death can occur in certain merger cases, as a result of an owner's decision to cease operations, because the firm has gone bankrupt, or for a number of other reasons. For more on bankruptcies, see Bankruptcy statistics.

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