Businesses in Northern Ireland are facing unprecedented levels of change as they continue to adjust to the new normal in the aftermath of the pandemic, writes Zara Duffy
The war in Ukraine and supply-chain challenges have led to inflation in the costs of fuel, materials and components. This means that businesses in Northern Ireland now need to review their pricing on a quarterly, if not monthly, basis.
Facing changing financing and cost structures, these businesses need professional advice on how to adapt and plan – advice they often see as another cost.
Business and financial planning grant
To help these SMEs, Chartered Accountants Ireland would like to see Invest Northern Ireland (Invest NI) reintroduce a Business and Financial Planning Grant similar to the scheme launched in October 2020 in response to the pandemic, which remained open for only a few months.
This scheme offered businesses up to £8,000 towards 80 percent of the eligible cost of engaging an external consultant to undertake a business and financial review to plan for their recovery.
If the scheme is reopened, we recommend that it be 100 percent funded up to the limit, and that it also be extended to non-Invest NI clients in a broader range of sectors across the economy.
We also recommend that the scheme be established on a permanent basis—particularly for micro and small businesses—and funded to include a follow-up review 12 months into the roll-out of the financial plan, with quarterly check-ins thereafter for up to three years.
The goal would be to ensure that financial plans do not just ‘sit on the shelf’, but become dynamic benchmarks, which are updated and adapted over time.
System of funding for SMEs
As the positive effect of COVID-19 support schemes wanes, a longer-term, sustainable and mature system of funding is needed for SMEs in Northern Ireland—one that involves an appropriate mix of grants, loans and equity investment.
We want the Northern Ireland Government to prioritise SMEs and make more money available for funding, while also moving away from a ‘grants culture’ and towards the support of a vibrant business debt and equity market.
More private equity investors will be encouraged to enter the Northern Ireland market if they see the commitment of the Government and its agencies through the provision of part-funding.
This will create a self-sustaining ecosystem, as both investors and the State will get their money back and more, such as the creation of jobs.
The hiatus with the Northern Ireland Assembly and Government has brought uncertainty to the three-year budget, including the allocation to Invest NI, a key agency for the region’s SMEs.
The indications are that the budget for Invest NI’s programme of supports and initiatives has been reduced from its previous level of £200 million.
Given Northern Ireland’s immense business potential, driven by its innovative start-ups and growing SMEs, it could be argued that at least £300 million should be made available from government sources for a ‘fund of funds’ for SMEs in the region.
Chartered Accountants Ireland would like to see clarity on the quantum and focus of the budget allocation for Invest NI, for important programmes like Co-Fund NI, Tech start NI and the Small Business Loan Fund (SBLF).
We are concerned about the large gaps that are currently emerging in available funding, particularly given that money from the European Regional Development Find (ERDF) will begin to fall away from March 2023.
The business model for banks, the traditional source of SME finance, has changed. Low interest rates mean that margins are not there to take on risk, or at least not all of it. Government schemes are dwindling and even grants are not forthcoming.
This scenario is not ideal for an economy trying to recover from a pandemic, but it is good news that British Business Bank (BBB) has earmarked a £70 million fund for SMEs in Northern Ireland.
We understand that more funding could be made available if the UK Government-owned BBB were to receive an appropriate proposal for an Enterprise Capital Fund. The Northern Ireland Government should at least match this commitment from BBB, if not exceed it to meet the potential of its business community.
With the right funding approach and leverage, there is an opportunity to create a more vibrant and self-sustaining SME sector in Northern Ireland.
We suggest benchmarking with other devolved nations and regions of the UK where this approach has worked—the Northeast and Midlands, for example.
Equity investment & non-executive directors
Northern Ireland accounts for just one percent of SME equity investment activity in the UK. There is potential for much more equity investment in the region, which would enable businesses to scale and grow.
As well as good corporate finance advice for SMEs, an awareness campaign using real-life case studies is needed to inform both business owners/managers, and their trusted advisors, about the benefits of equity as a source of finance.
Equity investment provides more than just cash to a business. The investor also brings valuable expertise and experience, a new network of contacts, and strategic input, typically joining the board of the company as a non-executive director (NED). The perception that this involves unwanted cost and loss of control needs to be overcome.
Chartered Accountants Ireland sees value in Invest NI’s Non-Executive Director Scheme and we believe its funding should be continued.
The scheme is designed to help SMEs strengthen their leadership capability, by supporting the appointment of an experienced independent NED. It also offers advice on the engagement of a suitable NED, and financial support of up to £15,000 or 49 percent of eligible costs, whichever is the lesser.
There is some cost to the SME, but this serves to focus understanding of the value a NED will bring and the full buy-in of the business.
More proposals by Chartered Accountants Ireland to create a better environment for businesses in Northern Ireland are presented in our annual position paper The Next Financial Year, published in July and available at
www.charteredaccountants.ie
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