SMEs & Entrepreneurs

THE SIGNIFICANCE OF THE SME SECTOR IN IRELAND-Jim Power

  • The Irish economic landscape is dominated by Small and Medium Enterprises (SME’s). They are predominantly Irish owned.
  • SMEs account for 99.8% of private business enterprises in the economy, spread across Industry, Services & Distribution, and Building & Construction.
  • There are 270,557 SME enterprises in the economy, employing 1.063 million people, which is equivalent to 68.4% of private business employment.
  • SMEs account for 41.7% of gross valued added in the Irish economy.
  • The majority of SMEs are small in employment terms. 92.3% of SMEs employ less than 10 people and employ 411,8923 workers in total. 4.1% employ between 10 and 19; 2.4% employ between 20 and 49; and just 1.2% employ between 40 and 249 workers.
  • SMEs account for more than 70% of employment in every county in Ireland, with the exception of Dublin.

THE OPERATING ENVIRONMENT FOR THE SME SECTOR-Jim Power

  • SMEs dominate the Irish economy in quantitative terms and in employment terms. However, a considerable body of research shows that many SME owners were finding the environment challenging prior to COVID-19, and many are now in serious difficulty.
  • The operating environment for many SMEs is challenging at the best of times, with tight margins a typical characteristic.
  • The business cost environment has been deteriorating on a range of fronts over recent years, a fact that is consistently highlighted by the National Competitiveness Council.
  • COVID-19 has clearly exacerbated the pressures. Sustaining and supporting SMEs is now a national imperative that will require unorthodox support and policy initiatives. There is no choice if Ireland is to re-create a functioning economy and bring unemployment down again.

SMEs & Entrepreneurs on Covid-19

Having worked with a lot of Entrepreneurs & SMEs for the past twenty years in all sectors we have gained a deep understanding for this sector and enjoy acting as accountants and advisors to many. We have a dedicated SME support resource for our clients perhaps there should be a Government led SME online resource and helpline for SMEs to help them access supports quickly. Entrepreneurship is an exciting but risky business, even in the best of times. The last twelve months could reasonably be called “the worst of times” that the world has collectively endured in recent memory, and most people’s response to such times is to avoid risk.

But entrepreneurs are a special breed: individuals for whom challenges are exhilarating rather than fear-inducing, who respond to change by pivoting rather than digging in their heels, and who see opportunities where others see roadblocks. The COVID-19 pandemic has disrupted plans, changed priorities, scrambled existing networks, and made us all acutely aware of the fact that we cannot predict the future or plan more than a year out. More than 70% of start-ups have had to terminate full-time employee contracts since the start of the COVID-19 pandemic. Many entrepreneurial businesses have pivoted to meet new needs for goods or services borne out of the crisis. The way entrepreneurial business models and approaches are affected by the pandemic will have an impact on how entrepreneurship is perceived as a job choice in the future.

The onset and spread of COVID-19 have left few people, if any, unaffected. Governments the world over have been repeatedly tested and stretched. They have set new rules and norms to try to re-establish confidence and give economies a chance of survival. The picture of how entrepreneurs and their systems have been affected is more nuanced than we might, at first, believe, but understanding it is important.

How it’s being (re)shaped today will have long-lasting effects. Some entrepreneurs thrive in chaos and see the opportunity in a crisis. While most are feeling fatigue, perhaps it is the lack of goals or an end sight that people are in this space.To try avoid a bigger crisis and now that people are more aware of global crisis entrepreneurs are all very conscious and looking to make their SMEs and businesses carbon negative in the short-term and to a net zero in the medium term, meaning that they will actually remove more carbon than they omit. Most SMEs and entrepreneurs are truly committed to building a better more sustainable working world.

Climate change is one of the defining issues of our time. The science is conclusive: we face significant and irreversible human-made changes to the climate. We know action is urgently needed if we are to limit the global temperature increase to 1.5°c above pre-industrial levels, in line with the Paris Agreement. Doing so is the only way we can avert catastrophe and protect the planet for future generations. Many businesses are setting carbon reduction targets, making progress toward net zero, and removing greenhouse gas emissions from the atmosphere. However, there is growing evidence that these current commitments aren’t enough. Our clients are looking at areas likes reducing business travel ( now all done with video conferencing ) , reducing electricity usage in premises and exploring solar, EV vehicles and other means of being more sustainable.

Government support targeting high-growth start-ups

Yet while these innovative start-ups are undoubtedly essential for the future of innovation and supporting them is critical, the current COVID-19 crisis also shows the importance of small businesses with more incremental approaches to innovation. SMEs can adapt quicker as they are in smaller boats so to speak than larger multinational ships.

To fully understand how the entrepreneurial landscape is changing, we must explore these other types of entrepreneurial activity as well. The Irish Government have just rolled out a report of the SME Taskforce: National SME and Entrepreneurship Growth Plan with an ambitious long-term strategic blueprint for Irish SMEs and entrepreneurs. The implementation of this is now key.

In reality the Covid-19 supports need to be expanded, extended and some new thinking in this area to help SMEs & Entrepreneurs. An SME taskforce needs to move quickly on this.

Finding opportunities amid the crisis: agility is crucial.

Pandemic Pivot is the new term for SMEs to adapt and survive. SMEs need to adapt or become extinct in effect.

While most start-ups may see repurposing as a short-term opportunity or solution, it remains a fundamental survival strategy and growth opportunity for the economies and industries of countries.

As such, to take advantage of the potential of these entrepreneurs, governments and other supporting institutions must develop appropriate measures to support this kind of entrepreneurship. The CPA Ireland network has member in both practice and industry who are in the coalface of business helping and advising SMEs to adapt and survive.

Working from home or as is termed by some “Living at Work” works for some but not all and perhaps co- working spaces and digital hubs are the pathway forward with high-speed connectivity and low fixed overheads for users which also saves on commuting. However it doesn’t work for all businesses. Some people like working from home and more productive and others don’t and find themselves less productive.

Changing perspectives on entrepreneurship

It is almost certain that the way entrepreneurial businesses are affected today will have an impact on how entrepreneurship is perceived as a job choice in the future. Some “Green Entrepreneurs” are making positive changes in a sustainable way in a complete rethink on their business model with online sales, websites and digital tools.

The changes we observe today may be a double-edged sword. Some might argue that the crisis could negatively impact the risks associated with entrepreneurship, and ultimately hinder start-ups in attracting the right talent. Others might suggest that the changes we observe today could alter perceptions of entrepreneurship for the better. Most entrepreneurs have had set backs in their journey and get up and go again. Resilience is in their DNA. They also like giving back and helping others.

In Covid-19 business owners lack the social interaction of bouncing ideas of their contacts over a coffee and only so much can be done via video conferencing. Going for walks within their 5K is great to get fresh air and helps to cope for some. With so many large institutions shedding talented and well-qualified employees, perhaps this crisis and its aftermath will encourage more people to take on the risks associated with entrepreneurialism when they think they’ve identified or discovered an opportunity. There are so many new needs and gaps to fill and start-ups tend to be much faster at adapting and filling gaps than more established companies. With remote working and new digital hubs, it is easier to now set up quickly and cheaply with large fixed overheads.

Entrepreneurs need more supports and also some incentives to start a new business as the cost of doing business is rising and with Covid & Brexit there are huge challenges for SMEs and entrepreneurs in 2021. All supports will need to continue a lot longer. While many start-ups will fail to survive the crisis, the pandemic has also given rise to more or new entrepreneurial activity – a reminder for us to reconsider how we value innovation in entrepreneurial systems. People are more conscious of their carbon footprint and now looking at ways to be more sustainable.

Some ways entrepreneurs and SMEs can build resilience in a coronavirus economy

  • Just because you weren’t prepared for COVID-19 doesn't mean you shouldn´t be building up your resilience during it, to get through the crisis but also as a buffer against the next “tsunami” we will face in the next cycle.
  • Resilience is as much a tool for surviving during crises (or “shifts”) as it is for thriving.
  • Leaders of SMEs and entrepreneurs must focus on key areas of resilience across leadership, revenues, the organisation, finances and operations.
  • SMEs & Entrepreneurs are very aware of building a better world and looking to become carbon negative and net zero. Climate change is one of the defining issues of our time and this pandemic has made people appreciate nature while walking in their 5k restriction.

There’s a proverb that goes: “The best time to plant a tree is 20 years ago. The next best time is right now.” The naturally vulnerable Small to Medium Enterprise (SME) and entrepreneur sector would have done well to build their resilience prior to COVID-19. But if they didn’t, as with so many, right now is the time to plant the seeds for short, medium and long-term resilience. After all, the next shift is sure to come whether it is in the form of a pandemic, extreme weather, forest fires or rising seas. And we might even still be recovering from this one when it does. It is difficult for SMEs to try in parallel deal with so many elements to their business model which is why it is good to be part of a network, get good advisors and chat with others.

Resilience requires entrepreneurs to engage in two somewhat contradictory activities: one is bouncing back from the collapse of markets, the breaking of supply chains, and the depletion of workforce capacity ie crisis management. The other is learning how to leap forward into markets, supply chains and talent markets where the rules for survival and success are unclear and changing. Utilising sales and marketing and growth strategies. To bounce back and leap forward, SMEs and entrepreneurs need to respond effectively in key pillars that together from resilience.

However, responding effectively depends in large part on having prepared to do so. A lot are fatigued by the rolling lockdowns at this stage which is understandable. Some introverts are happy in the new environment and deep thinkers and the more extroverted social person can find it difficult not to be meeting others in person as we are social by nature. Some creatives need a busy environment to be creative such as sitting in a museum or Café writing a book..

1. Leadership resilience

Leadership resilience is a team sport, contrary to some views of leaders as lone heroes; it requires you to fortify an entire network of relationships, taking in all your stakeholders, from your customers and suppliers to your community.Hasty responses to shifts can create bigger problems than the shift itself. Have an action checklist up your sleeve to avoid certain kneejerk behaviours when it is time to respond. This should include points like: “Avoid talking about things returning to normal, regardless of how comfortable it makes you and others feel” and “Don’t be surprised when people behave differently.”

2. Revenue resilience

Shifts that cut off revenue streams can jeopardize your company’s very existence. Thousands of businesses have accelerated sales programs under the pandemic, but often customers perceive such sales efforts as desperate or, worse, disingenuous. This kills customer connection and engagement. Most have now gone on-line utilising digital technology.

Some of our client’s revenues have dropped 90% through no fault of theirs and others grown 50%. We access every situation and access supports quickly to help the business survive. Some are in hibernation and will thrive again in time. Others need a major reinvention. We have availed of long term low cost funding via the banks and SBCI for some businesses to help them in their working capital cycle.

3. Organizational resilience

A robust organization will not only allow you to survive shifts, but will also strengthen your culture and reveal hidden depths. For example, in the present pandemic, many entrepreneurs and business owners are discovering not only the loyalty and dedication of their employees but also new emergent leaders and employees with critical but previously untapped skills. (Others are, sadly, seeing the opposite.)

The culture of the organisation is the engine of the business and good to see teams helping and supporting each other where kindness matters. If the culture is broken no strategy or blue-sky thinking will work. To see the healthcare teams in the frontline working daily to save lives is an example for us all of teamwork and kindness.

4. Financial resilience

A surprising number of entrepreneurs and business owners leave the details of their finances to their CPAs or financial advisors. This is a big mistake. The most important element of preparing to be financially resilient is to have a firm grasp on how money moves through your company. The cash flow forecast is the most important tool for doing this, and ideally one that extends at least 90 days at a daily resolution, and on a weekly resolution for 10-15 weeks following. Simple and effective and easy to do.

As CPAs we do 12 months quick cashflow forecast, access any supports available and try raise working capital finance quickly for the SME. Time solves some problems.Supports have been a lifeline for most but SMEs and entrepreneurs now need to look at restarting their business in a safe way and now is a great time to try new ideas and reinvent.

5. Operational resilience

One of the biggest surprises of the current pandemic has been the fragility of supply chains. So, map out your supply chain from raw materials to the end customer, and identify all potential vulnerabilities. Earmark primary and secondary suppliers for all critical inputs, minimizing the possibility of them having overlapping vulnerabilities. One of the biggest surprises of the current pandemic has been the fragility of supply chains. So, map out yours now. Conduct a formal audit of your manufacturing and service logistics, and establish a written protocol for communicating with suppliers during a crisis, including something which seems basic: updated contact information. Those involved in import or export will have had the added challenge of Brexit and the logistical uncertainty associated with it.

The human cost of the pandemic has yet to play out and we have worked and helped business owners in very difficult positions who have lost loved ones from this virus and their whole world has fallen apart. We encourage them to keep going and get professional help to manage to cope with stress and anxiety.

“SMEs are the backbone of our economy in every city, town and village across the county”- Leo Varadkar TD Tánaiste and Minister for Enterprise, Trade and Employment.

The importance of entrepreneurship to Irish society is well documented. Not only in economic and employment terms, but also in creating a resilient innovative community that serves the Irish consumer, EU and international markets. Facilitating entrepreneurs to have a voice in contributing to policy and working with policy makers. Overall, the objective for entrepreneurship is that Ireland will be characterised by a strong entrepreneurial culture, recognised for the innovative quality of its entrepreneurs and acknowledged by entrepreneurs as a world class environment of which to start to grow a business. The challenge is to harness to the full, the entrepreneurial potential of all those living in Ireland, whether they are establishing a social or commercial enterprise.