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Home : Reports and Publications : Audit & Evaluation : Program Evaluation Study: EDP and UEDI

Impacts and effects

Impact on the clients and client businesses surveyed

To review the impacts of EDP and UEDI on the clients and client businesses, we:

• Asked the clients to rate the impacts that the services had on themselves and their businesses;
• Tracked the change in the status of the businesses since the assistance was received; and
• Develop a profile of the businesses that have been assisted by programs and which are still operating.

The major findings are summarized as follows:

1.         The EDP and UEDI clients indicated that the services had a wide range of impacts on themselves and their businesses.

The clients were asked to rate the impact that participation in the program has had on them on a scale of 1 to 5, where 1 is not impact at all, 3 is somewhat of an impact, and 5 is major impact.  As indicated below, the impacts that were rated highest are increasing their access to capital and improving their quality of life.

Clients indicated that the program helped to improve their quality of life by improving their financial position, level of independence and self-confidence.   Other impacts that were identified by clients included:

• Increasing access to business information through one-to-one communication with delivery agency staff or contractors, seminars & speakers, training and written materials.
• Helping them to further develop their business skills through training programs in areas such as accounting, marketing, legal issues, computers, and website development.
• Reducing their reliance on income assistance.
• Enabling them to network with other entrepreneurs. 

The results indicate that the programs target individuals who have already decided to operate their own business and are designed to facilitate business development rather than encourage people to become self-employed or start businesses. 

2.         Only 17 of the clients indicated that they were already operating their businesses when they approached the delivery agency for assistance.

The other 131 clients were possibly interested in establishing a new business.  Of the 17 clients operating existing businesses, 16 were approaching the delivery agency seeking a loan.   

The annual revenues of the 17 businesses, that were already existing, ranged in size from under $10,000 to over $100,000. 

3.         At the time of the survey, 97 clients were operating businesses, 22 businesses had ceased operations, 1 was sold, 14 are still in the planning stage, and 14 are no longer being planned.

The following chart traces the evolution of the businesses from the first contact.  As indicated, when the clients first approached the delivery agencies, 11% were operating businesses and 89% were not.  Of that 11%, 10% are still operating and 1% has ceased operation.   Of the 89%, 69% started-up operations of which 55% are still operating and 14% have ceased operations or were sold.

4.         Of the businesses that are still operating, most are in the service or retail sector, have operated for 4 years or less, employ four or fewer people, and generate revenues of $50,000 or less.

The following table compares the characteristics of the EDP and UEDI clients to those of the CFDC loan clients that we surveyed while assessing the impact of the Community Futures program in Western Canada in 2001.  As indicated, the characteristics of the businesses assisted by EDP and UEDI are generally quite similar to those of all clients obtaining loans from CFDCs.  Some of the differences are that EDP and UEDI clients are somewhat more likely to be in the services sector and are more likely to generate revenues of $25,000 or less annually.  The average EDP and UEDI client business estimates that they will $173,227 in revenues in the current year while the average CFDC loan client business generated $305,246 in revenues when the survey was conducted in 2001. 

 

The average revenues of the EDP and UEDI businesses are inflated by a number of businesses that generate revenues of over $1 million annually including two that generate over $2 million.

5.         Through the interview process, we heard many personal stories regarding the impacts that the EDP and UEDI have had on clients.

Some of the feedback we obtained from EDP and UEDI clients with whom we followed-up includes:

• The EDP program provided one client with the capital that she needed to expand her party rental business.  She had not been able to obtain the funding from any other source.  The expansion was very successful and enabled her to increase her earnings and, as she notes, “more money means more independence”.  The business is outgrowing its current location and she will soon be approaching Community Futures for another loan.
• The EDP provided a client with the capital that he needed to set up a steam-cleaning service for the oil industry.  The loan provided 60% of the money that he needed to start the business, with the remainder coming from a settlement and personal savings.  He notes that, “at first we had to advertise, now they call us and we sometimes have to turn people away”.  As a result of the program, he has gone from being reliant on Workers Compensation to earning up to $10,000 per month.  The resulting “economic freedom” changed his life in many ways. “I have the freedom to do what I want, travel, buy a car, help my kids buy a house, do things for my grandchildren that I couldn’t not afford to do with my own kids”.  He attributes much of his success to research he did prior to becoming involved in the industry.
• A First Nation’s client approached the EDP program to learn more about electronic technology and access a loan to start-up a technology-based entertainment service.  With support from the CFDC, he has been able to set up a mobile service that sets up equipment for conferences, DJ events, and karaoke.  He received a loan of $25,000, which made up 60% of the money invested in the business.  He notes that he would have had no chance of obtaining loan funds from another source if the program did not exist, and is very satisfied with the assistance that he received.  The program greatly improved his quality of life, reduced his stress, and enabled him to become more independent.  He hopes to expand the business and buy some new technology to start operating in the nightclubs.   The client advises others who want to start up their own business to be prepared for the hard work and long hours that are required.  “Persistence is needed if you want to succeed”.
• A client received an EDP loan of $31,000, which provided 75% of the capital he needed to start a pet store.  He sells a wide range of pet supplies and pets and, next month, is planning to add more reptiles and expand the size of the fish section to three times its current size. He notes that, “Yes, my quality of life has improved, I am more independent, and I do not rely on the government for assistance.  I do it for myself now”. His advice for other considering starting their own business is to research the industry, talk to a bunch of people who are already in the business, and get a good accountant.
• A client obtained a loan for almost $100,000, which made up over 90% of the money he needed to start an excavation company.  He notes that he also invested a lot of “sweat equity” into the business.  As a result of the business’ success, he has been able to get off of income assistance and become financially independent, which has improved his confidence and self-esteem.
• Under the UEDI, a client received a small loan which, when matched with his own savings, enabled him to start-up a mortgage brokerage and consulting company.  He works closely with real estate agents and car dealerships, trying to give their customers the best interest rate possible.  The client notes that his life has changed dramatically for the better, greatly reducing his stress and giving him much more independence.  The advice that the client gives others is “Work hard! Have fun! And it is not easy.”
• A UEDI client received a loan for about $15,000, which he used to start-up a small retail business.  He noted that, without the loan and the hands-on assistance, he would definitely not have been able to get the business off the ground.  The business has helped to improve his outlook on life and motivation, while ending his reliance on government assistance.
• For a client who received a UEDI loan for an existing business  “this program was the turning point in my life.  Before the program, I was in between jobs, out of options, and out of money.  I was trying to run this business, but it was going nowhere”.  The loans committee initially turned him down but a staff member ‘went to bat’ for him and was able to make the loan go through.  “I am now making $130,000 a year.”   He notes that his business is going good now and he hopes to expand in the future and hire some staff to assist him on projects. 

Estimated economic impacts

One objective of our survey of clients was to develop an estimate of the economic impact (in terms of revenues and employment) that the assistance provided to EDP and UEDI clients has had.  It is important to not only track changes in the client businesses over time but to also obtain input regarding the extent to which those changes are attributable to the services provided by CFDCs and UEDI delivery agencies.  In reviewing the economic impact, we focused on loan clients because those are the clients most likely to be impacted by the services and for whom the impacts are most easily measured and extrapolated.

To assist us in this regard, we asked the clients a series of questions related to issues such as:

• How long the business has been operating;
• The status and revenues of the business when the first service (usually a loan) was provided that significantly impacted the business;
• The current size of the business (in terms of revenues and employment); and
• How important the service provided by the CFDC or UEDI delivery agency was to the development of the business (on a scale of 1 to 5) and how likely it is that the business would have developed to this stage without the assistance of the CFDC (expressed as a probability percentage).

Our methodology focuses on defining the cumulative economic impacts that are generated by a typical EDP or UEDI client business in the first five years after it receives assistance.   A five-year period was selected because our sample was drawn primarily from clients who have received assistance during the past five years.  To the extent that the impacts of the assistance provided under EDP and UEDI continue to go forward beyond five years, this approach under-estimates the ultimate cumulative impact of the assistance provided.  To estimate the 5-year cumulative impact of the assistance provided, we divided the methodology into the following series of five steps:

1. The first step was to determine the growth rate in the revenues of the typical client business over a five-year period.
2. The second step was to estimate the survival rates of the typical client businesses over a five-year period.  What percent of the businesses survive and how does that change over time?  The survey results provided an indication of survival rates.  However, we also had to adjust for the fact that the businesses which were surveyed tend to have higher survival rates than do those which we could not reach (i.e. the non-response error) or for whom we did not receive names (the frame error). 
3. The third step was to calculate the net economic activity of the client businesses.  Taking both the growth rates and survival rates into consideration, what level of revenues does the typical client business generate over a five-year period?
4. The fourth step was to determine the extent to which the economic activity is attributable to the assistance provided by the CFDC.   In effect, based on the survey results, how much of this activity can services provided through EDP and UEDI take credit for?
5. The fifth step was to extrapolate the results to the larger population of loan clients who have been assisted.  To do so, we simply took the average impact per client and multiplied it by the value of loans provided.

The results of each of the five steps are presented below.

1.         The revenues of the EDP and UEDI assisted businesses tend to grow each year that operations continue.

To illustrate the growth pattern, we have developed a scatter diagram that shows the revenues reported by the loan client businesses by the number of years it has been since the first important service (usually a loan) was received through EDP or UEDI. 

As indicated, the revenues of the businesses tend to increase over time.  In the following table, we have developed a regression line based on the revenue data provided above (excluding outliers) and used it to calculate the cumulative revenues that would be generated by over a period of five years. 

Over a five-year period, the average UEDI and EDP client business would generate about $554,000 in revenues.

2.         Business survival rates decline over time but are difficult to estimate because of the frame error and non-response error. 

The second step is to determine the survival rates of the typical UEDI and EDP client businesses over a five-year period.  Excluding businesses that were never started, about 20% of the businesses we surveyed have ceased operations.  According to the survey results, the percent of businesses that are still operating declines over time.  Whereas over 90% of the businesses are still operating one year after the client first received important assistance from EDP or UEDI, fewer than 80% are still operating 5 years after receiving assistance. 

The survey results overstate the actual survival rates because:

• Some delivery agencies sent us client lists which excluded the names of inactive clients or businesses known to no longer be in operation; and
• Even when delivery agencies provided us with full client lists, the businesses that were surveyed would tend to have higher survival rates than do those that we could not reach (i.e. the non-response error).  

In attempting to adjust for these factors, we have taken into consideration the default rate on loans, estimates provided by representatives of delivery agencies, and the results of our previous assessment of CFDCs.  Based on this information, we have roughly estimated that survival rates may range from 50% to 70% by the end of the fifth year as illustrated in the chart below. 

3.         After adjusting for survival rates, we estimate that the average EDP and UEDI business (including those which are still operating and those which have ceased to operate) would generate revenues of approximately $346,000 over the five-year period since the first important key service was provided. 

The following table shows the cumulative revenues of the typical firm, the estimated survival rate of the businesses (we have adopted the lower band from the previous table) and the product of the two, which is referred to as the adjusted cumulative revenue line.

If we assume that there is one-person year of employment for every $42,500 in revenues (which is consistent with our past assessment of CFDCs), the average business would generate about 8 person years of employment over a five-year period.

4.         The majority of impacts generated by the services are incremental in that they would not have occurred in the absence of the support provided by the program. 

To assess incrementally, we asked the clients a series of questions with respect to the assistance they received.  The results indicate that:

• Most clients believe that the services they received have been very important to them in the establishment or further development of their business.  When asked to rate the importance on a scale of 1 to 5, where 1 is not at all important and 5 is very important, the average rating was 4.3 and 59% of the respondents indicated that it was very important.
• The clients were, on average, only 12% confidant that they could have obtained their loans elsewhere (e.g. from family members) if the program had not been available. 

• The clients, on average, indicated that there was only a 22% likelihood that they could have developed to this point with the assistance of the CFDC or UEDI delivery agency.

Based on the responses, we estimated the extent to which the revenues of each client (or change in revenues if the business was already existing prior to receiving services) are attributable to the services received from the programs.  Taken together, we have estimated that 76% of the revenues and employment generated by these businesses over a five-year period are incremental in that they would not have occurred in the absence of the program.  More specifically, we estimate that the services provided to each EDP and UEDI loan client have, on average, over a five-year period generated:

• Over $260,000 in revenues; and
• About 6 person years of employment.

Given that the average client we surveyed received an average of $28,700 in loans, we therefore estimate that the loans result in about $9.16 in incremental revenues for every dollar in loans provided and generate about 1 person year of incremental employment for every $4,500 in loan funding provided over a five-year period.

5.         By extrapolating the survey results to the entire population of EDP and UEDI loan clients, we estimate that (going out over a five year period from when assistance in initial provided) the loan programs have generated about $117 million in incremental revenues and 2,680 incremental years of employment.

The following table summarized the estimates on a per business basis and extrapolated to the total population of loan clients. 

ESTIMATE OF THE AGGREGATE ECONOMIC IMPACTS OF THE SERVICES PROVIDED TO EDP AND UEDI LOAN CLIENTS

Indicator	Per Client	Total Population of Loan Clients
Revenues Over Five Years	$346,000	$190 million
Incremental Revenues	$260,000	$145 million
Incremental Employment	6.1 person Years	3,400 person years
Value of Loans Received	$28,700	$16.1 million

These figures under-estimate the total economic impacts of the programs because they do not include the impacts associated with clients who receive technical assistance but do not receive a loan under EDP or UEDI.

Comparison of the responses of UEDI and EDP clients

The following table compares the responses provided by the EDP clients to those of the UEDI clients.  As indicated, with respect to issues such as the achievement of client objectives, the level of client satisfaction, and ratings regarding various types of impacts, the responses do no vary significantly between the two groups.  Other factors such as the average value of loans received, business status and projected revenues for the current year do vary somewhat between the two groups; however, it should be noted that these differences may reflect differences in the client lists provided (i.e. the CFDCs were more likely than the UEDI delivery agencies to provide a list of all of their active and inactive clients) rather than true differences between the two groups.

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