Online sales and social media a shot in the arm for small firms
There are opportunities on the horizon for small- and medium-sized businesses, the lifeblood of Irish towns, writes Neil Hughes
THE latest ESRI figures, published in December 2013 forecast growth levels of 2.7 per cent in 2014. While the economic outlook -- projected growth or otherwise -- continues to vary from economist to economist the consensus does seem to point to a period of some level of growth ahead.
More encouraging still is business sentiment on the ground. Hughes Blake specialises in giving advice to well over 1,000 owner-managed, entrepreneurial and family businesses; the sector that is the backbone of the Irish economy. There has been a striking shift in sentiment among those business owners we work with and almost all have now stemmed the losses of recent years.
This is clearly to be welcomed following the challenging years both businesses and individuals have had to endure -- and one thing is certain, the challenges and personal sacrifices aren't over just yet.
However, the reality is that for those SMEs in Ireland who have managed to get through the last five years and have dealt with legacy debt, they are now well positioned to take advantage of the period of anticipated growth ahead.
What SMEs have ALREADy done
In order to survive and thrive, Ireland's SMEs have reduced costs, driven innovation and, in many cases, developed new markets -- both at home and abroad -- to help sustain their businesses.
Many are now looking more and more to technology and are harnessing the power of social media to drive customers to their business. Others have looked at ecommerce and online sales as a way to generate revenue, with their bricks-and-mortar revenues decreasing.
However, the principal reason Ireland's SMEs have returned to profit is that businesses across the country have become much leaner operations. With less and less fish in the barrel to shoot, people are doing more with less and are focusing their energies on a more limited range of profitable activities.
'Vital to the fabric of communities and society is consistent growth and shared prosperity in all parts of the country'
In many ways the recession has fuelled a back-to-basics approach that sees a company do one thing well rather than diversifying broadly across many areas.
What SMEs can do TO ENCOURAGE GROWTH
Owner-managed, entrepreneurial and family businesses tend to be quite flexible in nature with the ability to move quickly, to adapt to the new environment and the opportunities that an upturn will create in the coming months and years.
It's critical now for SMEs to adopt the right business strategies to catch the upswing. I have already touched on cost-effective marketing for products or services that should include a social media and online sales strategy.
However, SMEs need to be sure they have a base level of capacity to ensure they can be profitable in 2014. In certain businesses we have seen the cuts of the last five years have gone through the fat of a business and into the muscle, with limited resources left to really deliver on customer promises being made. Is it time to take on one more employee in the business, even on a part-time basis?
Finally, SME owners are acutely aware that they are trading in an economy where more banks have exited the country or been liquidated as a result of the crash than have stayed in business. The landscape for working capital finance has changed beyond recognition. A strategy for working capital is absolutely critical for businesses looking to grow and this may include finance from niche, independent financial institutions based in the UK and which are currently lending strongly into Ireland.
For some, the ability to reduce costs significantly was not within their control and their financial affairs may have spiralled out of control. Others may have legacy bank debt that has been sold on to a private equity fund and are facing into 2014 with their secured creditor a complete stranger to them. For them, the options will appear bleak with fundamental restructuring the only option left. Examinership is a rescue process for fundamentally good businesses and allows a second chance to companies that face receivership or liquidation.
Recent statistics show that 1,523 companies became insolvent in 2013, a decrease of 18 per cent on 2012. I believe that many of those companies could have survived had they considered examinership instead. The process gives the protection of the courts for up to 100 days from creditor claims while an examiner seeks new investment, new working capital facilities or arranges non-core asset sales to fund a restructuring scheme with all creditors, to allow the company emerge debt-free.
Similar to 2012 and contrary to common perception, the vast majority of companies that successfully came through the examinership process in 2013 were SMEs. Not only is this outcome good for towns and villages throughout the country -- the retention of a long-established business and employer -- but it is also good for jobs. In the past year alone, 2,691 Irish jobs were sustained through the examinership process. Examinership helped stem redundancies and maintain existing employees in their jobs in Ireland in 2013. This phenomenon is one of the pillars supporting the economic growth outlook in Ireland in 2014.
At Hughes Blake we have acted in over half of all examinerships in recent years. There are a couple of common threads that have emerged from our experience.
Firstly, examinership is the only way in Irish law that a business can exit from an onerous, upwards-only lease and the retailers of Ireland can now be divided between those who have gone through examinership and right-sized their annual rent bill; and those that have not. We have seen a disproportionate number of companies coming through the process from the retail sector with recent predictions in the media that many more will follow in 2014.
Secondly, the issue of legacy bank debt has been a feature of many recent cases. We believe that 2014 will see more attempts to restructure unsustainable secured debt, with or without the secured creditor's consent. In many instances the debt will no longer be owed to the bank from whom it was borrowed and the new secured creditor may have no interest in a long-term solution to the SME's current financial difficulties (unlike the approach being taken by our pillar banks), instead only being interested in a receivership sale of all of the secured assets. One of the central reasons for the introduction of examinership legislation was to balance the rights of a secured creditor with the power to arrange events solely in their own interests against the rights of all creditors and employees.
Ireland's future economic health will be determined by the health of our local towns, businesses and communities.
With the housing market returning to growth -- but only, it appears, in the Dublin and Leinster area -- it is of vital importance that all that is possible is done to avoid a situation where we have growth and economic prosperity in the major urban areas only.
Vital to the fabric of communities and Irish society at large is consistent growth and a shared prosperity in all parts of the country. Central to this is the health of our SME businesses.
As a native of Enniscorthy, Co Wexford, I have seen first-hand that the employment they provide is the lifeblood of Irish towns, creating a significant knock-on effect across the economy as a whole.
With businesses poised for growth, I feel optimistic about the future -- but it will be important to ensure that all those who need to take remedial steps for their businesses are facilitated in as accessible and cost-effective a manner as possible. Our future economic prosperity depends on it.
Neil Hughes is a managing partner at Hughes Blake