Self-employment is making a comeback and could add billions to

 Canada’s economy  if solo operators make the jump to entrepreneurship by hiring employees, according to a new report.

A survey by the Business Development Bank of Canada (BDC) of 851 self-employed workers found that 11 per cent plan to hire in the next year. At scale, BDC estimates that the transition has the potential to create 213,000 new businesses and boost Canada’s gross domestic product by 0.8 per cent or about $24 billion.

Roughly two million Canadians are currently self-employed with no paid help, and some will have opportunities to grow into employer businesses, said Pierre Cléroux, BDC’s chief economist and vice-president, research. Small- and medium-sized businesses play a big role in the economy and generate about half of Canada’s GDP, according to BDC.

“If we are able to support more self-employed people to become small businesses, we’ll have an impact on the Canadian economy,” said Cléroux.

The COVID-19 pandemic caused a “sharp drop” in self-employment, the report said, as many flocked to traditional jobs and enjoyed “accommodating” and “favourable work conditions” in 2021-22 due to the tight 

labour market.    Since 2023, the number of self-employed workers has ticked up again. The report suggests going solo may be more appealing because of the challenging job market, return-to-office mandates and the desire for more flexibility.

“While the ratio of self-employment to total employment remains below historical averages, this increase signifies a notable trend toward self-employment,” the report said.

BDC’s survey classified respondents into three categories based on growth intentions: 35 per cent are “stable” (no plans to hire or invest), 27 per cent are “agile” (open to opportunities under favourable conditions) and 38 per cent are “ambitious” (eager to grow with plans to hire or invest in the next 12 months).

The first five years are vital for a company’s prospects because ambitious self-employed people are most likely to hire workers during that period, said Cléroux.

BDC’s survey said that 15 per cent of self-employed individuals in business for less than one year intend to hire in the next 12 months. Those intentions peak at 20 per cent for those one or two years in business and drop to 17 per cent for those in business three to four years.

“After this time, the likelihood of becoming an employer drops, and after 15 years, only a few choose to hire employees,” the report said.

The report highlights similar challenges facing Canada’s ambitious self-employed and micro-businesses, which have one to four employees. Client acquisition and work-life balance were among the top concerns for both groups, along with cash flow management, administrative tasks and time management.

On top of managing everyday tasks, self-employed people have to deal with the fact that it’s harder to secure financing. Seventy-three per cent of those surveyed said they use personal money to sustain their business, and most have limited familiarity or experience with commercial financing, according to the report.

“I believe that financing and coaching are two important components of how we can help these people to make that decision (to grow) and to have a successful business,” said Cléroux.

The self-employment resurgence comes as entrepreneurial activity in Canada continues its decades-long decline. The report noted that in 2023, a “historic low” of just 0.11 per cent of the country’s labour force opened new businesses.

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However, there may be opportunities for the self-employed to capitalize on an incoming wave of retirement. In January, a

BDC report  estimated that a potential $300 billion in revenue is up for grabs over the next five years as many small- and medium-sized business owners who are aged 50 and older plan to exit.

“A lot of entrepreneurs are looking to transition,” said Cléroux. “This report shows that people who are self-employed are great candidates to take over a business that is for sale.”