Sunday 11 December 2016

Good vibrations: Irish SMEs have a positive outlook for 2016 - but challenges remain

Ireland's small business owners have reported their most positive outlook since the start of the recession, but are still hampered by lack of access to credit and red tape

Harry Leech

Published 09/08/2015 | 02:30

Mark Fielding, the chief executive of the Irish Small and Medium Enterprises Association
ibec
pic mark condren
december 2009
Mark Fielding, the chief executive of the Irish Small and Medium Enterprises Association ibec pic mark condren december 2009

Irish business owners are positive about the outlook for their businesses for the first time in seven years with the vast majority expecting increased or steady profit levels, while a significant number expect to hire staff and increase wages this year.

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The Sunday Independent Business Owners Survey 2015 polled the owners of 300 businesses over the past month.

The survey found that almost half of respondents, 45pc, said they expected their company's profits to increase in 2015, with almost the same amount, 44pc, stating that profits would be broadly in line with last year. Just 8pc of respondents said that they expected profits to fall this year, while 3pc said they expected their business to make a loss.

The prospect of an improvement in employment numbers also looks also good. Irish SMEs plan to hire in significant numbers for the first time since the start of the recession, with 38pc stating they expect to increase staff numbers this year. The majority of those polled, 59pc, said they expected staff numbers to stay the same. Just 3pc of companies who responded said they would lay off staff this year.

Although the sentiment for increased employment numbers are good, 17pc of SMEs said they are finding it hard to find suitable staff. Many said years of net emigration have decimated the pool of staff available, which is becoming increasingly problematic now that the economy is beginning to improve. One business owner said that in their experience "good staff are either already employed or they have emigrated".

Another significant issue facing employers in 2015 is pressure from staff to increase wages, as employees who have felt the brunt of increased taxation during the recession, particularly the Universal Social Charge, look for pay increases. Of the respondents, 16pc said increased demands for staff wages are the biggest issue that their company faces this year.

Perhaps because of this pressure, 40pc of business owners said they will increase staff wages this year, with many respondents stating they want to reward hard-working staff who have remained loyal during the downturn. Slightly more businesses, 45pc, said wages will not increase this year with 15pc undecided.

While the overall outlook is good, a significant level of disquiet over government policy was evident. Many believed Enda Kenny's promise to make Ireland the "best small country in which to do business" has fallen short. Many in the SME sector said that while the Coalition has performed well in attracting foreign direct investment, the government needs to do significantly more to make Ireland a good country for small businesses to thrive in.

The vast majority of respondents, 79pc, said the Government is not doing enough to create a productive and fair business environment, with the two biggest issues cited being access to credit and red tape.

Though banks insist they are lending, one in four small and medium-sized enterprises said the biggest problem facing their company is difficulty accessing credit. Access to credit is crucial to a sustained economic recovery, with research by the Central Bank highlighting that enterprises facing credit constraints are less likely to participate in growth-enhancing activities such as investment, marketing, hiring, exporting and importing.

Despite pressure from the Government on financial institutions, including those guaranteed by taxpayers during the financial crisis, and claims by financial institutions that the credit crunch is effectively over for Irish businesses, the message from SMEs is that the problem is still there.

It is a story that Eoin Fitzpatrick of Fitzpatrick Wholesale, which distributes to retailers across the country, hears on an almost daily basis. "I'm hearing from customers across the country that access to credit is a major issue for them. For many small businesses, overdrafts are being withdrawn and turned into terms loans to make the lending statistics look better. The other problem is that there is no reasonable discretion in banking any more. If a cheque puts a business slightly over their limit, even if it's only by a few euro, we have seen customers cheques bounce. That is obviously very embarrassing for clients but more importantly it is very damaging to their business," Fitzpatrick said.

The second biggest issue facing the SME sector which the survey highlighted is one that the government has direct responsibility for. Some 23pc of small businesses reported that red tape is the biggest issue facing their business.

The problem of over-regulation and regulation hampering the small business environment is a very real danger to growth, said Barbara Geoghegan, who is head of healthcare supplies distributor JS Dobbs.

"The big problem facing SMEs is that the red tape that applies to multinationals and the corporates also applies to the SMEs. The big players have whole departments that can deal with that sort of thing, while for most SMEs it is one person dealing with the paperwork, while also trying to keep the business running properly.

"The cost of doing business in Ireland is also horrendous - insurance has just gone up by 25pc and profits are just not there to justify staff cost increases", she said.

Though Minister for Jobs Richard Bruton announced government initiatives to cut bureaucracy in August 2011, January 2013 and January 2015, Irish SMEs feel significant improvements must still be made if the recovery in the domestic economy is to continue.

This point is backed by research by Paris-based think tank the OECD, which said in its Going for Growth 2015 report in February that the Government needs to do more to eradicate red tape.

The report said the regulation of licences and permits required to open and run a business is too restrictive in Ireland and that enforcing contracts and registering property is also difficult.

Although the results of the Business Owners Survey 2015 are promising, the message from SMEs is that the recovery is tentative and sectoral.

As Eoin Fitzpatrick concluded, "while the ambient business environment is improving, for many of our customers the upswing isn't there yet.

"Costs are rising and the government is talking about increasing the minimum wage, but for many small businesses the profit is not there to justify wage increases or increased staff numbers," he added.

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