It has so often been said that small businesses are the backbone of any economy and, for an economy as diverse as Ireland’s, this is especially true.
As we approach the halfway point of 2018, it would be an understatement to say that, for all the positivity of a rapidly growing economy, events beyond our shores have dictated that companies operating within the SME community cannot be complacent as a tide of change sweeps in.
Small business includes everything from the sole trader, to an ICT developer who has a small, yet growing client base, all the way to the food-exporting firm that is concerned about Brexit.
As Galway based SME’s look at where they are as we approach the halfway stage of 2018, most can feel that they are in reasonably good shape. The economy is growing, consumer confidence is positive with people having more money in their pockets and spending it.
So firstly and, to start off on a positive note – recent research by ‘One4all’ found that almost 70pc of Irish workers would like to work in a small to medium size enterprise (SME) or a start-up.
The research also shows that 70pc of respondents believe that start-ups and SMEs offer the best office culture.
The ever-growing millennial workforce are also following this trend, with close to half of those aged under 25 preferring to work in an SME, and a further 20pc saying they would like to work in a start-up.
The research, which aims to explore Irish employees’ attitudes towards office culture, wellness, and perks also found that 39pc of those polled disagree with the statement that providing office perks, such as breakfast or snacks in the office, puts pressure on employees to work longer hours.
While salary is the most important factor for most people when looking for a job, a friendly work environment was deemed the next most important thing for Irish jobseekers.
The CEO of One4all, Michael Dawson noted: “What’s interesting is a high number of workers feel motivated to work longer hours for a smaller company. People are happier to give up their hard-earned free time to help a smaller business flourish, which is a very positive thing for growing Irish companies, and for the Irish economy in general.”
Business however, as anyone will tell you is never straightforward and there is a whole new set of challenges arising for SMEs – ones that come with better times rather than recessions. Here are some of the key challenges that SMEs have had to face thus far in 2018.
- Increasing cost of doing business: SMEs say the cost of doing business is getting higher, which in turn puts pressure on their own costs and margins. Whether it is dealing with the public sector, higher service costs or factors like wages or rent, it is inevitable that business costs will rise in a thriving economy. When things are going well everybody believes they can squeeze a little more out of everyone else. Higher wage demands will also drive this up. Many of these problems are good ones to have because they show how the economy has turned. These are the challenges of managing in good times rather than surviving in bad. The reality for many different SMEs will vary. Some are retailers worried about the threat of online, while some small towns in the western part of rural Ireland are worrying about their own future for similar reasons.
- Finding/accessing talent: If an SME wants to hire better people, they will not only have to find them but also pay them more. The jobs market is getting close to full employment, which means more power in the market falls to employees. As the jobs market continues to heat up going into the latter half of 2018, the country will inevitably have to rely on inward migration to fill many of the positions. Some of these may come from returning Irish emigrants, but the figures to date do not reflect a mass return of emigrants to Ireland just yet. However, the ‘One4all’ survey referenced earlier paints the SME cohort as a favourable one to find employment in. This may prove crucial given that a recent finding by the Small Firms Association (SFA) shows that the inability to recruit staff is the number one threat to small business. Sven Spollen-Behrens, Director of the SFA noted that “the tightening of the labour market was proving to be very challenging for SFA members with two thirds of them looking to recruit over the next twelve months”.
- Debt and dealing with Banks: Irish SMEs are still paying some of the most expensive interest rates in the eurozone. A lack of competition in banking and legacy debt issues for SMEs has left them quite cautious about borrowing. The really good businesses have become debt-averse while others are still sitting on ticking debt time bombs that were never fully dealt with in the recession. It was seen during the crash how perfectly viable businesses went to the wall because unsustainable legacy debts dragged them down. Those issues have not all gone away. It is certainly good news that banks are out there willing to lend to SMEs again but many good operating businesses will not be able to avail of that financing because of past mistakes.
- Brexit: Brexit and the uncertainty it has presented has had somewhat of a sensitive impact – depending of course on the business type or the sector in particular. Some companies, especially in the food sector, are exporting to the UK and want to make decisions based on Brexit but they are unsure how it will all play out. Smaller exporters to the UK may have an opportunity to acquire a business or a processing facility in Britain which would reduce much of the risk of a hard Brexit. Establishing a physical presence in the UK might also make sense where the UK is still seen as a key/strategic market for the business. However, this might also mean they are not creating jobs at home, which many of them will find hard to stomach, especially in smaller towns throughout Connacht and elsewhere around the country.
- Sterling: The sterling issue is a growing concern given the thorny issue of Brexit but it warrants a different consideration. Some Irish companies were stung and ill-prepared when sterling collapsed after the Brexit referendum vote. They have had time to adjust now and the rate has come back a bit. However, as Brexit still looms large and edges ever closer, sterling is likely to stay weak. Currency hedging is one option, but many small and medium businesses seem reluctant to do this. They see it as not their core strength and question why they are taking a position on currency, which is simply not what they do.
- Regulations and bureaucracy: Small businesses complain that they continue to face increased regulations, which in turn can lead to delays and additional workloads to comply. If anything, the world is becoming a more bureaucratic and regulated place. Compliance always features high on the list of concerns for SME owners, in good times or in bad.