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Brand-building for competitive advantage

Clever branding can mean the difference between success and failure for small businesses competing in a crowded market, writes Gerard Tannam Branding is a tool available to every business. Every type of business can compete for their best customers with a strong brand that influences choice. Because a smaller business can play to the singular strengths of its brand relationships with customers to distinguish it from others, it can level the playing field with its own competitive advantage. A strong brand is good for business. It provides an advantage over competitors by distinguishing a business from them in a way that matters to customers and influences their choices. Despite its importance, however, this simple business tool, which is available to every business, is often misunderstood, underestimated, and underused, particularly by smaller companies. ‘Brand’ can be defined in many ways: as a mark of origin or quality, as image or reputation, as a proposition or promise, and even as a badge of community or a shared belief system. None of these definitions is entirely satisfactory, however. While each definition says something true about what a brand is or can be, none captures the part a brand plays in choice. A definition of brand As well as being a tool that businesses use to influence choice, brand is also the tool that customers use to make their choices and reassure themselves that they are correct. When customers are spoilt for choice or do not have the time or inclination to analyse every buying decision, they often rely on brand to help them choose. And so, the brand tool is used in two different though complementary ways: a business uses brand to help it become the natural choice of its customers; its customers use brand to help them make the right choice of product or service. A brand is a tool that influences choice by reflecting the relationship between buyer and seller and the value they exchange. Marks of quality or identity, such as names, symbols or logos, are means of representing the brand relationship and its value, rather than being the brand. Wedding rings, for example, symbolise a relationship (marriage) between two people – they are not the relationship itself. The brand bridge To understand brand and how it works, consider the relationship between buyer and seller as a ‘bridge’. Just as a bridge is designed to enable people to cross over safely, quickly, and easily from one side to the other, a brand bridge enables people to exchange value safely, quickly, and easily. The two-way traffic on the bridge of give-and-take between buyer and seller suggests a partnership of equals, both of whom want something the other has and must agree on the value to be exchanged through the transaction. Brand bridges are more handshake than arm wrestle, a basis for good and sustainable business. A definition of branding Defining brand as a tool for business leads to a definition of ‘branding’ as the influencing of choice by building a relationship between buyer and seller based on the value they exchange. A brand relationship establishes a connection between a business and its customers around the value each understands the other is offering. Branding involves putting the brand relationship to work to build and maintain the commercial relationship with existing customers and turn potential buyers into new customers. Why branding matters to small businesses Success in business comes down to an ability to influence choice. A superior product or service only takes a business so far. Many hardworking businesses have brought an exceptional offering to market and failed. To be successful, a business must influence enough of the right kind of customer to choose what it brings to market. Brand relationship plays a critical role in the choices customers make. Even in a busy marketplace, where customers are spoilt for choice, a strongly branded business can lead its market and command a premium for its product or service. Every business has a brand, strong or weak. The brand’s strength or weakness results from actions taken by the business in building the relationship with its customers. A strong brand is especially important for small businesses, which are unlikely to have the spending power or marketing resources available to larger competitors. The smaller business can play to the strengths of its brand relationship with its customers to distinguish it from other businesses in the marketplace, and so level the playing field. Five steps to defining a brand 1. Define the value to be exchanged The value to be realised through the brand relationship is not set by one side or the other but must be agreed. For any relationship to work both parties must continue to see and realise its value. However, while the brand relationship is defined by the value sought by the buyer and offered by the seller, this must at least match the seller’s asking price for the exchange to work. The asking price, which the business requires for the exchange to be profitable, is a useful starting point for defining value. This is typically based on the costs of the resources the business must invest in the relationship, plus its margin or premium. Then the business considers how the customer is likely to rate the benefits on offer, if this accumulated value matches or tops the asking price, and whether they are likely to pay it. 2. Identify and target the ‘best customer’ For the brand relationship to work, it is vital that the business carefully chooses the type of customer with whom it and its value proposition are best matched. When business development lacks focus, a business will attract a wide variety of prospective customers, some well matched with it, but many not. A business that deals with too broad a mix of customers will struggle to profitably realise the value in many of its individual transactions. A well-matched or ‘best customer’, on the other hand, will add predictable and significant value to the exchange and deliver the premium that the business needs. Your best customer: needs what you have to offer, considers it essential; wants what you are offering, finds it highly desirable; values what you offer, prioritises it above all others; engages fully with all of the elements of your offering, not just its purchase; can pay for it (an ability not confined to affordability). 3. Identify and fix the customer’s ‘key problem’ People buy from other people to fix what they experience as a problem and to enjoy the benefits that result. Potential customers are more likely to be ‘best customers’ when they consider that the product or service offered by a business fixes their key problem. There are two aspects or sides to a customers’ key problems: the practical and the social. The practical is what the product or service does and the direct, functional benefits it provides, while the social is how the customer relates to others and the world through their choice of that product or service and can be understood in terms of how it makes them feel. For example, someone is thirsty and buys bottled water. Any bottled water will do. Another customer is thirsty but is concerned that many bottled water products use irreplaceable natural resources. They choose a brand of water that is carbon-neutral with recycled packaging. The business with the sustainable brand has found its best customer; the customer has used brand value to meet all their needs and fix their problem. 4. Identify and fix both aspects of the key problem More customers are choosing products and services that fix the practical and social aspects of their problems, so it is important that a business identifies both aspects and determines the role that it will play in fixing them. This role must go deeper than the complementary role of seller to the customer’s buyer, and deeper too than the functional role played by the business in fixing the practical problem. When the product or service offered by a business is largely the same as that offered by its competitors, it is the role that the business plays in resolving the social aspect of its customer’s key problem that adds real value, and greater profitability, to the transaction. For example, a business owner seeks an accountant to prepare monthly accounts to support their management of the business. Any suitably qualified accountant can answer this practical aspect of the business owner’s problem. However, the owner struggles to make sense of how accounts relate to their business and can feel overwhelmed and helpless. They will choose an accountant that fixes this personal (social) part of the problem, guiding and advising the owner to help them to understand the numbers and the performance of their business. 5. Provide information required for the buying decision When customers are considering which product or service to choose, they will search for some or all of 10 types of information about how a business solves their key problem: Attraction – ‘What is it about this offer that appeals to me?’ Engagement – ‘What tells me that it is right for me?’ Demonstration – ‘How does this offer work?’ Sample – ‘How can I try it for myself?’ Testimonial – ‘Who else has benefitted from this offer?’ Proposition – ‘How do I take up this offer?’ Delivery – ‘How is this offer provided to me?’ Support – ‘How will you help me make the most of it?’ Recovery – ‘What will you do to help me if something goes wrong?’ Feedback – ‘How will I let you know what I think of your offer?’ Final word When the success of a business depends on the effectiveness of its brand in influencing choice, building brand relationships should not be left to chance. Branding is a tool available to every business. Every type of business can compete for their best customers with a strong brand that influences choice. Because a smaller business can play to the singular strengths of its brand relationships with customers to distinguish it from others, it can level the playing field with its own competitive advantage. Gerard Tannam is founder of Islandbridge, a brand planning and strategic development company

Apr 11, 2023

Management

2022 All-Member Survey

Brendan O’Hora reports on the findings of the 2022 All-Member Survey Research is conducted to discover new information or reach a new understanding of something, so the Institute’s biennial membership survey is crucial. These have been two years of significant change, and as a membership organisation, it has never been more important for us to act on the findings in a comprehensive, targeted way for the benefit of 31,000 members globally. The survey was conducted in May and June with over 1,800 members by independent research agency, Coyne Research. This level of participation helps us to build a very accurate picture of the member experience and is much appreciated. It allows us to make the most of this opportunity to check in with members, and to ascertain how we will respond and act on the findings. This year, we also conducted qualitative research via eight focus groups. This exercise gave us a deeper understanding of member sentiment and reinforced that we are operating in very unusual times. The operating environment The pandemic may be in retreat, but its effects persist. An ongoing adjustment to hybrid working, declining levels of resilience after extended periods of pressure, and changing priorities among younger members, many of whom qualified or spent their early years in a virtual environment, have had an impact. Compounding this are growing cost-of-living pressures. The top challenge emerging from the survey for businesses was, unsurprisingly, the competition for talent, up significantly on 2020. Following this is inflationary pressure and increased labour costs. What is resonating with members Looking at our membership as a whole, the qualification is very highly regarded and a source of great pride. The letters mean a lot to our members, and that pride also extends to the robustness and quality of the education provided. In reviewing the findings, Bernie Coyne at Coyne Research noted that members are broadly positive about the way the Institute has responded over the last two years to the pandemic. She said: “As in previous years, members were invited to rate a range of services, based on their experience and degree of satisfaction, with sentiment remaining consistent. Over seven in 10 members rated the webinars and online CPD options as good, with a 20 percent increase in those who experienced them since 2020. The range of specialist qualifications was also rated highly, as was Accountancy Ireland magazine, the weekly Tax News circular, and the knowledge hubs on the Institute’s website.” The research also pointed to an increase in the number of members who have communicated with the Institute by phone and email since 2020. Roughly seven in 10 rate their experience in communicating positively. While there was strong uptake of the virtual alternatives on offer during the pandemic, there is confidence in returning to face-to-face events. Indeed, the research points to a desire, particularly among younger members, to engage and learn about how they can make their membership work for them and derive the greatest value from it. Consistent with many of our peers globally, we have seen drops in key member metrics, such as satisfaction and relevance as well as likelihood to recommend the qualification. While, unsurprising, given these unusual times, it is an important alert for the Institute that is already prompting action. How we are responding to the findings In a changed external environment, and armed with considerable insights, our challenge now is to reposition how we engage with members, with a particular focus on younger members at the start of their career, to optimise their experience of the profession. We are working closely with the Chartered Accountants Student Society of Ireland (CASSI) and the Young Professionals Committee in so doing. Our members are some of the strongest advocates for the profession, and, at a time when there is a continuing shortage of qualified accountants, it is incumbent upon us to ensure the membership experience is a positive, rewarding, and relevant one for these most important advocates. One of the ways we will be doing this in the coming weeks and months will be through a campaign to put the tools into members’ hands to make their membership work for them. It will feature real members speaking about how they’ve made the most of their membership and will be accompanied by an updated member section on the website to help users better access and understand what is available, from membership details to Continuing Professional Development, conferences, social events, and supports. Our focus is on giving more control of their experience to our members, so that this experience can be tailored and made to work for the individual. In closing, I want to return to a theme I touched on at the outset—resilience in the face of sustained pressure. One-in-two respondents reported that COVID had a negative impact on their mental health, compared to 2020. Younger members were less likely to be aware of the Institute’s member support service CA Support, and we will be working to increase awareness of this important resource. Brendan O'Hora is Director, Members, at Chartered Accountants Ireland

Dec 02, 2022

Member Profile

Distilling the dream

Jennifer Nickerson left a successful career in Dublin to co-found a whiskey distillery in rural Tipperary. She tells Accountancy Ireland about her inspiration, ambitions and lessons learned along the way When Jennifer Nickerson co-founded Tipperary Boutique Distillery in 2014, the Aberdeen-born Chartered Accountant had already risen through the ranks at KPMG in Dublin to become an associate director in the tax department just seven years after joining as a trainee. Tipperary Boutique Distillery is now exporting worldwide and employs seven people in south Tipperary with further plans for expansion. Here, Nickerson tells us about what inspired her move into entrepreneurship and her experiences establishing and growing a small business with global reach. Q: Tell us about your life and career prior to co-founding Tipperary Boutique Distillery—what prompted you to become a Chartered Accountant? I grew up in Scotland and my dad, Stuart, was a master distiller. He managed and worked as a consultant for some of Scotland’s best scotch producers, such as Glenfiddich, Balvenie and William Grant & Sons. You could say I grew up in the industry. I loved it, especially the passion the people working in it had. I went to college in Edinburgh for six years, studying Veterinary Medicine initially and then switching to Accountancy. I decided I didn’t want to work outside in the cold and wet. I wanted to work in an office and I had this perception that a job in accountancy would be “nine-to-five”. I was wrong about that, but after meeting my husband Liam and moving to Ireland to train, I found I really enjoyed the problem-solving aspect of the work. Numbers make sense. There is a “right answer” and that can be very satisfying. I worked in the tax department at KPMG and did a lot of advisory work. The hours were long but there was great camaraderie and that makes for a really nice working environment. Q: So you had settled into this new career in Dublin and you were enjoying it. What prompted you to up sticks and move to rural Ireland to set up a whiskey distillery? I married a farmer—but I did tell him that I wouldn’t be moving to Tipperary unless there was work there that would interest me as much as what I was doing with KPMG in Dublin. We talked it through and my dad had already mentioned during a visit to Ballindoney, Liam’s family farm near Clonmel, that it would be the ideal setting for a whiskey distillery. We could grow grain, we had the land to build a distillery on, there was good quality water in Tipperary and good conditions for maturing whiskey as it’s a little bit warmer than Scotland. He really just mentioned it in passing, but it struck a chord. I’d had lots of experience putting together business plans and I was lucky that Liam had a steady job working for the county council. It was a calculated risk and we could afford to do it, so we went for it. Q: What was your vision for Tipperary Boutique Distillery starting out in 2014? Ultimately, we wanted to produce a world-class whiskey from grain to glass here on Ballindoney Farm. We knew we had everything we needed, but we also knew it would take time, because distilleries are expensive and there is also the cost of laying down spirit for at least three years before it can be sold as whiskey. It wasn’t until 2020 that we finally had the funding raised, the facility built and the equipment installed to open our own distillery. We had started outsourcing Irish whiskey casks from other distilleries cut to bottling strength with water from our farm and released our very first expression way back in March, 2015. After that, we started taking our own grain from the farm, having it malted and distilled by my dad at other facilities. Now, we are able to do everything apart from malting here in our own distillery. We grow our own grain, we mill, we mash, we ferment, we distill, we mature and we bottle here on the farm. Q: Tell us about your markets? What countries do you sell to and where do you have the healthiest trade? We sell into Belgium, France, Canada, into several states in the US, and a little in Korea and Singapore. We were selling to Russia, but obviously not any more, and we were in discussions with distributors in Ukraine and Poland, but the impact of the war has scuppered both. Germany is our biggest market, Italy is great, and Belgium is a surprisingly steady little market as well. In Ireland, we sell online ourselves at tipperarydistillery.ie and through Irishmalts.com, James J Fox, The Celtic Whiskey Shop, and through local retailers around the country. Q: What was it like moving from a successful career as a tax advisor in a Big 4 environment into the cut and thrust of entrepreneurship? Was it a good experience? It was massively humbling to be honest, but also incredibly rewarding. At the start, I did miss having colleagues to talk to and bounce ideas off. I really felt I was on my own and it took me a while to find my feet. My background in accountancy definitely helped a lot with the ‘form filing’—understanding bills and applying for licenses, things like that. At the same time, there were lots of things I didn’t know about, like where to get a barcode or source seals for bottles. It was a massive learning curve. Q: What are the most important lessons you have learned so far running your own business? I had no idea starting out how vitally important sales are. That sounds like a ridiculous statement, but it took a long time for me to shift my mindset away from numbers and deadlines to just getting out there and going after sales. What I know now is that you can’t give up. It’s no good just sending out an email to a potential customer and waiting for them to come back to you. You have to keep trying and telling literally everyone you can how great your product is and why. That can be really hard because it’s very different to sitting in front of a computer as an accountant and working to a deadline. You have to be willing and able to stand up on a stage and say, “this is what we’re doing, we’re amazing and our product is the best”. There is a theory that 80 percent of all sales in any business come from 20 percent of costumers. Based on my own experience, I’d have to agree with that. There’s really no point in chasing one-off sales. It’s far more important to focus on valued relationships than driving around trying to get a bottle into every bar in the country. On the other side of the coin, you have to chase your bills just as much. If you’re not getting paid, you’re in trouble. Q: How has the COVID-19 pandemic and the more recent war in Ukraine affected your business and how have you responded? As soon as the Pandemic hit, our orders from overseas plummeted. We had two pallets due to go to a distributor in a country that was very badly impacted by the pandemic and they ended up having to wait six months to take delivery. Irish people are brilliant though. They started buying more Irish whiskey during the pandemic and that really saved our business. Russia’s invasion of Ukraine had a massive impact as well, because it caused major supply chain issues for us and other producers. We had to change our glass suppliers, and we had really big delays with cork supplies, the capsules for the top of the bottle seals, cardboard for packaging deliveries—you name it, everything was disrupted. Most of our suppliers I tried to keep, because we have good relationships with them and that’s really important in business. We were also probably lucky that we are quite a small operation, so we have been able to adapt more quickly than bigger producers. Q: The Irish whiskey industry has grown enormously in recent years—do you think there is room for further growth and what are your own plans from here? When we started back in 2014, there were something like six craft distilleries in Ireland, but by the time our own distillery was up-and-running in 2020, the number had risen to around 40. The market grew so much in that time. There is a lot more competition now and a lot more diversity in the sector, but there are also a lot more customers buying Irish whiskey in Ireland and overseas. I think there is still scope for some growth in the market. Forty distilleries sounds like a lot, but Scotland has around 100. What we are seeing is that, as the market matures, there is less focus on cost and greater focus on quality. Each producer has to know their niche and communicate it well to the marketplace. For Tipperary Boutique Distillery, our plan now is to continue to sell in Europe, and expand our presence in America and Asia. We want to continue to grow sustainably and one day—hopefully soon—open our own visitor centre at our distillery here on Ballindoney Farm.

Dec 02, 2022

Strategy

Harnessing the human advantage

Attracting, retaining and upskilling their people will be a top priority for Ireland’s chief financial officers in 2023. Colin Kerr reports As Irish businesses approach another year of uncertainty, Ireland’s chief financial officers (CFOs) are looking to workforce upskilling as a major “investment opportunity” in the 12 months ahead. The latest Deloitte CFO survey benchmarked the sentiment of 1,151 CFOs in 15 countries in Europe. Published in mid-November, the bi-annual survey sought the views of 75 senior finance executives in Irish business, in sectors ranging from construction, healthcare, and manufacturing, to retail, tourism and transport. Seventy-two percent said upskilling was a major priority for them currently, while 96 percent identified attracting and retaining skilled talent as one of the biggest risks they would face in 2023. “This outweighs their assessment of other risks, such as the economic outlook for Ireland, the geopolitical outlook, supply chain logistics, and cyber risk,” said Danny Gaffney, Partner, Deloitte Ireland. “The survey also highlighted the point that a lot of CFOs are recognising the multiple benefits of upskilling at a macro level. As Irish businesses upskill their teams, it creates capacity within those teams and CFOs see the importance of that given the constrained talent market.” Businesses in Ireland are refocusing their workforce policies and planning talent attraction and retention, according to Deloitte’s findings. Eighty-five percent are looking at rolling out flexible working patterns, while 69 percent are reviewing their reward offering. Sixty-eight percent, meanwhile, are investing in wellbeing and assistance programmes, and 59 percent are investing in sustainability initiatives, such as measures to reduce their carbon footprint. “Wellbeing and assistance programmes are actually getting leveraged to a greater degree. Going back to the hybrid discussion, the usual supports that are available onsite are not always available when you are working in a hybrid environment,” said Gaffney. “Having in place good wellbeing and assistance programmes is very useful to organisations in the hybrid environment where CFOs and their teams are not as well-connected as they would be onsite.” Gaffney advised that CFOs put a clear strategy in place when considering how best to upskill their team. “What we need are practical solutions where team members continue in their roles and can upskill around the working day, either in person or online,” he said. “At Deloitte, we are working with clients to help them meet this challenge, including an increasing focus on digital technologies. Personally, I would encourage CFOs to look at training as a better use of their internal capital than focusing on external resources, as a means to allow them to do some of the challenging things they are not doing at present.” The pursuit of digital finance strategies is one of the challenges facing CFOs. Upskilling existing employees can help to meet this challenge. “Getting upskilling right is essential. If you don’t get it right, it falls by the wayside and the business, the CFO and the internal teams all lose out as a result,” said Gaffney. “The biggest trap CFOs can fall into is making upskilling too complicated. The three pillars I would identify are: Show, Support, Assess. CFOs need to be sure the people on their teams are getting the specific training and development they need.” Communication is equally important, as is commitment, according to Gaffney. “It is a two-way street and both the CFO and their team need to be open, upfront and honest in advance of committing to training and upskilling,” he said. “The business needs to understand the team motive and the individual team members, who are being upskilled, need to understand the business motive behind the process. Commitment is also key because—if we are talking about businesses trying to generate capability to create business value going forward—they need to be committed to ensuring the right conditions are in place for their teams to excel during and after the upskilling.” The growing trend towards hybrid working among businesses in Ireland offers its own potential opportunities. “Remote and online training is much more commonplace now than it was two or three years ago,” said Gaffney. “With hybrid working, the big challenge a lot of businesses and organisations have faced, and continue to face, concerns connectivity. They can say, ‘we mandate you to be in the office on particular days each week,’ and that can lead to a reaction that may be very negative. “On the other hand, there are workplaces that are more employee-led in terms of when people are required to come into the office. The challenge in this scenario is that these employees can feel disconnected from the organisation. “Training is a brilliant way to make people feel connected. When training is made available to me through work, I feel that I am valued and more aligned to my role. This is because I can see that both my organisation and I understand what it takes for me to be successful.” The foremost challenge for many organisations is their CFO’s capacity to “absorb costs”, both new and existing, Gaffney said. “Rates of inflation will remain higher for a longer period of time, as the cost of debt rises and the appetite for risk declines, and organic growth is more of a focus for the CFOs over merger and acquisition (M&A) activity. “Reducing M&A activity may seem like something CFOs would look to do, but they should look at longer-term investments to mitigate current risks.”

Dec 02, 2022

Management

Counting the costs

SMEs hit hard by the pandemic must now grapple with the economic fall-out of the war in Ukraine, signalling fresh uncertainty for the year ahead, so what’s the best plan of action? COVID-19 lockdowns, global supply chain disruption, inflationary pressure – and now the economic fallout from the Russian invasion of Ukraine. The headwinds facing Ireland’s small- and medium-sized enterprises (SMEs) show no signs of easing as we enter the third quarter of 2022. Even as the year began, the imminent winding down of Government supports for COVID-hit businesses was already prompting speculation of a spike in insolvencies just around the corner. Now, Gabriel Makhlouf, Governor of the Central Bank of Ireland, has called on a “patient” approach from policymakers and creditors to help ensure that “unnecessary liquidations of viable SMEs are avoided over the coming months.” Speaking at a recent event in Dublin co-hosted by the Central Bank of Ireland, Economic and Social Research Institute, and the European Investment Bank, Makhlouf pointed to the need to “channel distressed but viable businesses towards restructuring opportunities and unviable businesses towards liquidation.” Uncertain outlook For those SMEs in the sectors hit hardest by the pandemic, the fresh economic turmoil sparked by the Ukraine invasion will be a cause for concern. “The outlook right now for SMEs generally in Ireland is very hard to determine,” said Neil McDonnell, Chief Executive of the Irish SME Association (ISME). “It will vary considerably from sector to sector, but after two bad years for hospitality and tourism due to the pandemic, the war in Ukraine is likely to mean volumes will remain low into the summer.” Pandemic-related insolvencies have yet to spike. Research released by PwC in February found that Government support had saved at least 4,500 Irish companies from going bust during the pandemic, representing an average of 50 companies per week during the period. Insolvency rates are likely to rise in the months ahead, however, as pandemic supports are withdrawn from businesses with significant debts, and PwC estimates that there is a debt overhang of at least €10 billion among Ireland’s SMEs, made up of warehoused revenue debt, loans in forbearance, supplier debt, landlords, rates and general utilities. “Government supports have to end at some point. We realise this, but it will be accompanied by a significant uptick in insolvencies. This is natural and to be expected, since 2020 and 2021 both had lower levels of insolvency than 2019,” said Neil McDonnell. “Aside from hard macroeconomics, however, we can’t ignore the element of sentiment in how businesses will cope. This is the third year in a row of bad news.” Confidence in the market Before taking on his current role as Managing Partner of Grant Thornton Ireland, Michael McAteer led the firm’s advisory services offering, specialising insolvency and corporate recovery. “What I’ve learned is that you really cannot underestimate the importance of confidence in the market,” said McAteer. “If we go back to 2008 – the start of the last recession – or to 2000, when the Dotcom Bubble burst, we can see that, when confidence is lacking, the pendulum can swing very quickly. “If you’d asked me a few weeks ago, before the Ukraine invasion, what lay ahead for the Irish economy this year, I would have been much more optimistic than I am now. “Yes, we were going to see some companies struggling once COVID-19 supports were withdrawn, particularly those that hadn’t kept up with changes in the marketplace that occurred during the pandemic, such as the shift to online retail – but, overall, I would have been confident. Now, it is harder to judge.” Government supports Neil McDonnell welcomed the recent introduction of the Companies (Rescue Process for Small and Micro Companies) Act 2021, which provides for a new dedicated rescue process for small companies. Introduced last December by the Department of Enterprise, Trade and Employment, the legislation provides for a new simplified restructuring process for viable small companies in difficulty. The Small Company Administrative Rescue Process (SCARP) is a more cost-effective alternative to the existing restructuring and rescue mechanisms available to SMEs, who can initiate the process themselves without the need for Court approval. “We lobbied hard for the Small Company Administrative Rescue Process legislation. The key to keeping costs down is that it avoids the necessity for parties to ‘lawyer up’ at the start of the insolvency process,” said McDonnell. “Its efficacy now will be down to the extent to which creditors engage with it and, of course, it has yet to be tested in the courts. We hope creditors will engage positively with it.” McDonnell said further government measures would be needed to help distressed SMEs in the months ahead. “We already see that SMEs are risk-averse at least as far as demand for debt is concerned. Now is the time we should be looking at the tax system to incentivise small businesses,” he said. “Our Capital Gains Tax (CGT) rate is ridiculously high, and is losing the Exchequer potential yield. Our marginal rate cut-off must be increased to offset wage increases. “Other supports, such as the Key Employee Engagement Programme (KEEP) and the Research and Development (R&D) Tax Credit need substantial reform to make them usable for the SME sector.” Advice for SMEs For businesses facing into a challenging trading period in the months ahead, Michael McAteer advised a proactive approach. “The advice I give everyone is to try to avoid ‘being in’ the distressed part of the business. By that, I mean: don’t wait until everything goes wrong. “Deal with what’s in front of you – the current set of circumstances and how it is impacting your business today. “Ask yourself: what do I need to do to protect my business in this uncertain climate, and do I have a plan A, B and C, depending on how things might play out? “Once you have your playbook, you need to communicate it – and I really can’t overstate how important the communication is. “Talk to your bank, your suppliers, creditors, and your employees. Sometimes, we can be poor at communicating with our stakeholders. We think that if we keep the head down and keep plugging away, it will be grand. “By taking time to communicate your plans and telling your stakeholders ‘here’s what we intend to do if A, B or C happens,’ you will bring more confidence into those relationships and that can have a really positive impact on the outlook for your business. “Your bank, your creditors and suppliers are more likely to think: ‘These people know their business. They know what they’re doing.’ If something does go wrong, they know that there is already a plan in place to deal with it.” Role of accountants Accountants and financial advisors will have an important role to play in the months ahead as distressed SMEs seek advice on the best way forward. “We are about to experience levels of inflation we have not seen since the 1980s. This will force businesses to address their cost base and prices,” said Neil McDonnell. “My advice to SMEs would be: talk to your customers, to your bank, and your accountant. Your accountant is not just there for your annual returns. They are a source of business expertise, and businesses should be willing to pay for this professional advice. No business will experience an issue their accountant will not have not come across before.” As inflation rises, SMEs are also likely to see an increase in the number of employees seeking pay increases, McDonnell added. “Anticipate those conversations, if they haven’t occurred already,” he said. “Any conversation about wages is a good time to address efficiency and productivity – is there more your business could be doing to operate more efficiently, for example, thereby mitigating inbound cost increases?”

Mar 31, 2022

Management

Beyond the watershed

COVID-19 has changed the face of banking globally, but what’s next? Billy O’Connell delves into the top 10 emerging trends shaping banking this year. The COVID-19 pandemic has irrevocably changed the banking industry. Customers have become more demanding on multiple fronts - from service fees to sustainability - banks have doubled down on technology, accelerating their innovation drive, and new entrants to the market have become more ambitious, broadening the scope of services they offer. Here are the ten trends most likely to impact banking globally and locally in the months ahead. 1. Everyone wants to be a ‘super-app’ Just as the smartphone consolidated our hardware needs within a single device, super-apps are consolidating many of our retail, social and other needs. Most digital banking consists of checking balances, paying bills, and making deposits — functionality more and more big technology players are incorporating into broader platforms alongside other services like commerce and social networks. How should traditional banks respond when faced with the expansion of Amazon, Meta, and others into financial services? They can try to add non-banking functionality to their own services and compete head-to-head for customer attention or partner with a super-app to provide white-label services. A third option is to wall themselves off from the fray and defend their traditional franchise. 2. Green gets real Investors and regulators will need to see environmental promises being delivered as they urge financial firms to become better stewards of the planet. Proposed rules will require independent verification, proving that banks are living up to their claims. They will face immense pressure to redirect credit away from carbon-heavy companies toward sustainable energy. In Ireland, lending has become increasingly ‘green.’ The main financial institutions are evolving their product offerings, focusing on supporting environmentally-friendly economic activity. These products make a real difference as they actively guide consumers towards a change in their behaviours. 3. Innovation makes a comeback Globally, the decade after the great financial crisis was a period of retrenchment in which many banks pulled back from introducing new products and focused on getting the basics right. Start-ups and digital challengers have emerged, with new offerings leveraging innovative solutions to target specific customer pain points. The growth of Buy Now Pay Later (BNPL) providers is an example of this. However, banks are fighting back with creativity. Irish retail banks have invested significantly in the last five years in technology and innovation projects to deliver new digital services for customers. We are seeing this in product innovation across the board – in the introduction of fully digitised customer journeys for personal lending and mortgages, instant account opening, data analytics and new digital capabilities to support SME lending. During the pandemic, we saw retail banks improvising and innovating at speed as they leveraged their technology investments to respond with creativity and agility to the new challenges. 4. Fees Over the last several decades, banking fees have shifted from regular charges for services like account maintenance to in-built fees for facilities like overdrafts. Fintech firms arrived, promising an array of services for the magical price of free, only to reveal later that revenue must come from somewhere. Banks are creating features that put the users in charge of fee decisions. Fortunately, digital, AI and cloud capabilities are converging to provide the perfect platform for personalised advice that will help build consumer trust and involvement. 5. The digital brain gets a caring heart Before and during the pandemic, banks continued to invest heavily in digital technology to make banking more accessible, faster, and efficient. However, it is more difficult than ever to win customer loyalty. Banks realise they have much to gain by learning to better understand and respond to customers’ needs and individual financial situations. Being well-positioned to meet customer needs through the challenges of the past 24 months has been important for banks and customers who needed their support. Building on this momentum and focusing on AI and other technologies will be important to help banks predict customers’ intent and respond with more tailored messages and products. 6. Digital currencies grow up Several central banks worldwide are now launching digital currencies, and more are thinking about it. These are accompanied by maturing regulations around cryptocurrencies and a recognition that, while decentralised finance (DeFi) may still be in the experimentation phase, many of the core concepts of decentralised trust will likely have enduring value. We will likely see more financial institutions and government agencies sharing data and ideas on how to incorporate aspects of this new type of money into the global financial system. According to the Competition and Consumer Protection Commission (CPCC) research, one in ten Irish investors (11%) held crypto assets or cryptocurrency like Bitcoin in 2021. The number jumps to one in four (25%) for those aged between 25 and 34, indicating the appetite amongst younger generations in Ireland for digital money. 7. Smart operations put zero in their sights In 2022, banks will apply artificial intelligence and machine learning to back-office processes, enabling computers to outperform humans in some tasks. This will, eventually, decouple bank revenue from headcount. Banks have made incremental efforts to streamline their operations at a global level. These new technologies, along with the use of the cloud and APIs, can accelerate their efforts well beyond small efficiencies and toward the long-held dream of ‘zero operations’ where waste and latency are eliminated. 8. Payments: anywhere, anytime and anyhow Getting paid and sending money are now anytime, anywhere features we’ve come to take for granted. The next step in this payment revolution is for these networks to open up. China has already demanded that internet companies accommodate rival payment services. At the same time, proposed legislation in India would force digital wallets to connect and mandate that merchants accept payments from all of them. Banks with payment offerings will have to compete and cooperate with rival banks, fintech, and other players as the world of networks opens up. We’ve seen this gathering momentum locally, with AIB, Bank of Ireland, KBC, and Permanent TSB coming together on a joint venture to create a real-time payments app. The continued investment highlights the desire to evolve in response to customer needs and compete with digital challengers, such as Revolut. Customer trust is an essential factor in driving success in the financial services industry. If the banks can give consumers the digital functionality they crave, alongside reliability and service, they could leapfrog their challengers. 9. Banks get on the road again Just as individuals are relishing getting out from under pandemic travel restrictions, banks too will go wandering in search of growth both at home and abroad. In Ireland, we’re already seeing M&A activity from the core banks, causing a seismic shift in the entire landscape. This includes Bank of Ireland’s takeover of the capital markets and wealth management divisions of Davy stockbroker and its purchase of KBC’s loan book; AIB’s acquisition of Goodbody Stockbrokers and its JV with Great West LifeCo; and Permanent TSB’s purchase of Ulster Bank’s loan book. 10. The war for talent intensifies Figures released from The Workhuman Fall 2021 International Survey Report indicated that almost half (42 percent) of Irish employees plan to leave their jobs over the next twelve months. As technology has become a critical enabler for banks, a much-publicised shortage of engineering, data and security talent presents a real challenge. Younger workers, in particular, want flexibility and to be valued in their jobs. Forward-thinking banks are developing integrated plans that holistically address their work and talent issues. They’re mapping the skills they need now and expect to need in the future and are using a variety of approaches to recruit and retain them. They are also re-assessing their structure, culture, and work practices to improve their appeal as employers. Time for a different approach Decades from now, the most successful banks will be those that continuously shape their businesses to the needs of customers, employees, and other stakeholders. Their greatest asset will be their ability to identify opportunities and innovate efficiently. Billy O’Connell is Head of Financial Services business at Accenture Ireland.

Mar 31, 2022

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Personal Impact

“Philanthropy provides the risk capital for projects and initiatives that benefit society”

The publication of the National Philanthropy Policy will mark an important milestone in the evolution of this type of proactive giving in Irish society With a new National Philanthropy Policy due to be published later this month, the Department of Rural and Community Development will set out plans to create an ‘enabling environment’ for philanthropy in Ireland. For Philanthropy Ireland (PI), the representative body for the sector here, the policy’s publication marks a very important milestone in the evolution and perception of this type of proactive giving in Irish society on the cusp of the New Year. PI defines philanthropy as the act of giving money, goods, time or effort to support a charitable cause, usually over an extended period of time and in regard to a defined objective. “Irish philanthropy comes in different shapes and sizes, from small community grants to men’s sheds and new mothers’ groups to larger advocacy projects with a national remit,” explains Eilis Murray, Chief Executive of Philanthropy Ireland. “No matter what it looks like, philanthropy has touched every corner of Ireland, but it is still a relatively new concept here because our wealth is relatively new. “Irish people are generous and support many social causes, but compared to the UK and Europe, philanthropy here is underdeveloped. Greater support from the State and public awareness can change that. “For context, there are about 8,000 grant-making organisations in the UK whereas, in Ireland, there are only around 100.” For Philanthropy Ireland, which has been working with Minister Joe O’Brien and the Department of Rural and Community Development to create the new National Policy on Philanthropy, its publication will be a welcome development. “We hope it will encourage more people with wealth to give and, equally, encourage those advising them to consider the potential of philanthropic giving or leaving a legacy,” says Murray. For Liam Lynch, Tax Partner with KPMG and past President of Chartered Accountants Ireland, one of the biggest benefits of philanthropy is its potential to bring about positive change with real and lasting social impact. “Philanthropy provides the critical risk capital for projects and initiatives that benefit society and improve opportunities and outcomes for those who are disadvantaged in various ways,” Lynch says. “Some people are of the view that philanthropy shouldn’t exist and, instead, the State should administer all the money needed to fund good causes through the tax system. I don’t agree. “There is a point of view and perspective philanthropy brings to the table that promotes innovation in a way the State and local government are just not set up to do. “There are services the State should be providing as standard to support social good. Philanthropy is about building on this in a strategic, outcome-driven way that can have a very positive impact on society.” For those who decide to become involved in philanthropic giving, it is often a deeply personal endeavour and one that reflects their personal convictions and values, according to PI. “Philanthropy can make a difference in so many areas, from tackling educational disadvantage and supporting employment opportunities, to health-focused initiatives – mental health, children’s or older people’s health, for example,” says Lynch. “Philanthropic giving can go towards promoting sustainability and the environment or protecting Irish culture and the arts. This is just the tip of the iceberg. The potential is enormous. “That is why I would like to see more awareness and discussion of philanthropy, and philanthropists, in Ireland. I think we are generally very aware of the role of philanthropy internationally. “My question is, why don’t we celebrate our own philanthropists as much and make a concerted effort to recognise the goodwill they are putting into doing good in society?” Frank Gannon – Lynch’s colleague at KPMG Ireland and a Partner in the firm’s Financial Services Group – sees similar benefits in philanthropic giving. “For me, philanthropy means fulfilling the wish to give something meaningful to those who will benefit,” he explains. “Many people associate philanthropy with monetary donations, but there is much more to it than that.” Chartered Accountants Ireland’s members and trainees are well-placed to get involved in different types of philanthropic giving, Gannon says. “Our members and trainees have all been educated to a certain level. Sharing our knowledge, information and know-how with those who have not had the same opportunities – and, in particular, those in socially deprived areas – can be a powerful tool,” he says. “Social capital matters and a lot of Chartered Accountants have large networks of contacts. These networks can be leveraged to transform lives. Giving someone from a deprived area the opportunity to interview for a job could change the trajectory of their life with the positive knock-on effect extending to their family and wider community.” For those whose philanthropic interest lies in monetary giving, meanwhile, Philanthropy Ireland offers a wealth of advice and information on what you need to know to get started. “There are many forms of monetary philanthropy, which is often considered within the overall context of wealth management and estate planning,” it advises. “Individuals, families and corporates often set up their own foundation or they link in with an intermediary philanthropic organisation that can support them in their grant-making decisions and provide governance and compliance support.” To find out more about Philanthropy Ireland, the organisations and initiatives it supports and the different philanthropic options on offer, log on to philanthropy.ie

Dec 06, 2023

Personal Impact

How are we faring in 2023?

As we approach the final months of 2023, three Chartered Accountants take a moment to contemplate the hurdles Ireland has surmounted and share their aspirations for the remainder of the year Sinéad Nolan Financial Accountant AXA Insurance The economy is fine on paper (GDP and domestically); however, housing is a major issue, in both affordability and availability. The cost-of-living crisis is only exacerbating a problem that was already there for young professionals starting off their careers. Paying rent is a continuous challenge, as is looking for an affordable house to purchase. The interest rates keep rising, and house prices don’t seem to be reducing. Many in the country felt the challenge of paying bills in the wintertime. On top of that, there has been a lot of uncertainty with the war in Ukraine. On the plus side, there has recently been slight moderation in the price of energy and in inflation, and the pleasant weather in June was a bonus! (Less pleasant in July, admittedly.) Also, the unemployment rate in the Republic of Ireland fell to a record low of 3.8 percent in May. To help, my employer has hosted many financial wellness webinars, which, given the current economic crisis, have been great. We also received a well-being day off, not to mention personal interaction is happening in the office again – we are attending social events, which is brilliant. As for the rest of the year, I hope the housing crisis settles, and there is more support given to first-time house buyers from the Government. I joined the Young Professionals Committee in July after attending the wonderful Pride BBQ in June. I am looking forward to organising and hosting events, and connecting with other members of the Institute. The Young Professionals Committee is a great networking platform, so I am very excited to get stuck in with it. Jim Stafford Consultant Friel Stafford I work every day at the coalface, advising companies and individuals who are dealing with financial challenges, and thus I appreciate the issues facing the economy. While there is an economic brew of uncertainty caused by inflation, geopolitical issues, etc., the biggest impact we have seen this year has been the dramatic increase in interest rates, which has shaken some people to the core. We have observed a noticeable increase in Members Voluntary Liquidations from businesspeople who are deciding to ‘cash in their chips’ now rather than face future uncertainty. One of the positives that I have always enjoyed when working with people under financial pressure is recognising the levels of resilience people have. On the ‘resilience spectrum’, I am delighted to see some clients who bounce back stronger than ever. The highlight for me personally this year was the sale of Friel Stafford to Ifac, which will enable us to provide restructuring services such as the Small Company Administrative Rescue Process (SCARP) across Ifac’s 30+ offices. The association with Ifac has moved us into the top ten accountancy firms in Ireland, which has opened the doors to certain types of work, making it easier for us to attract and retain talent. A big development during the year was the growth of artificial intelligence (AI). While there is great potential for generative AI to change the workplace, there is also huge scope for more sophisticated fraud. Looking to the year ahead, a big challenge for some businesses will be the ending of the Revenue warehousing scheme, which was a valuable lifeline for many. We expect to see an increased number of SCARPs next year. Another big challenge for some firms will be the Companies Registration Office and the Corporate Enforcement Authority increasing their enforcement activity on companies that are struck off. Gordon Naughton Chief Executive Officer Tactive January represented a strange and uncertain time for the Irish and global economy. Many initiatives were placed on hiatus due to significant inflationary, economic and geopolitical concerns. In January, it was startling to see how quickly the mood had shifted from November and December. Since then, the business community and consumers have learned to live with these concerns and are in a positive state of mind. Currently, the Irish economy is showing tremendous resilience, with the overall tax intake and consumer spending being unexpectedly high. It seems the country is forging ahead. However, if the past three years are a barometer for future challenges, predicted and day-to-day issues tend to be easy to deal with. It’s the unpredicted challenges that can pose the most difficulty. My key lesson from this period is that businesses need to be agile, efficient and have contingency plans for the three main ways an economy can move – up, down or steady on. Luckily, I have great clients, a good support structure and network that has brought me through any uncertainty. I am so lucky to work from home and spend time with my wonderful family. Continuous learning is a facet of my life, as I simply like reading and expanding my knowledge. This year I obtained a black belt in Lean, which has helped me professionally and personally. As for the rest of 2023, I hope to continue to work with outstanding clients.

Aug 03, 2023

Sustainability

Taking action: How SMEs can adapt to climate change

Recent European heatwaves have highlighted the impact climate change has on society and the economy. Susan Rossney explores the challenges facing Irish businesses when taking steps to tackle the crisis Recent severe heatwaves in continental Europe have shown how the effects of global warming are coming ever closer to home. Forced migration, drought, forest fires and biodiversity loss are some of the many ways climate change will impact Irish society. Its impact on the economy will be acute, affecting everything from the health and wellness of employees to the cost of raw materials, scarcity of resources and supply chain disruption. Ireland and climate change Climate change poses risks to humans, nature and Ireland as a nation. Ireland is legally bound to meet ambitious national and international climate targets. According to the Climate Change Advisory Council (CCAC), an independent advisory body, Ireland will not meet the climate targets it has set for itself in the first and second carbon budget periods. The Environmental Protection Agency’s (EPA) provisional estimates on 2022 greenhouse gas emissions show that Ireland already used 47 percent of the carbon budget for 2021–2025 in the past two years. An annual reduction of 12.4 percent is now required for each of the remaining years if Ireland is to stay within budget. However, as emissions fell only 1.9 percent in 2022, this has been described as “extremely challenging” by the EPA. It is clear that action is required across all sectors of the economy and society, including: Mitigation: reducing activity that causes climate change, like burning fossil fuels (coal, oil and gas); and Adaptation: making changes to deal with the effects of climate change, from operational changes to cope with rising summer temperatures or winter flooding to factoring in the risk of developing stranded assets and increased carbon tax liabilities. Ireland’s perception of climate change According to Climate Change in the Irish Mind, EPA research conducted in 2021, most Irish citizens share a desire for action on the climate crisis. However, other EPA research has found that our emissions of greenhouse gases (GHGs) continue to rise. Environmental Indicators Ireland 2022, published by the Central Statistics Office (CSO), shows that Ireland’s 2022 emissions were 11 percent higher than in 1990. Enterprises contributed an estimated 12.7 percent to Ireland’s overall emissions in 2018, according to the Climate Action Plan 2023. Although this is less than the contributions of other sectors, there remains a need for Ireland’s enterprises to take action to reduce their emissions. However, a 2022 national survey of 380 SMEs and larger enterprises across industry and service sectors by Microsoft and University College Cork found that Irish businesses are underprepared to make the necessary changes to transition to a net zero future. According to the study, 86 percent have no commitments or targets to decarbonise. Barriers to action In the face of evidence of climate change – and Ireland’s willingness to take action – what is preventing Irish businesses from responding to the crisis? As an issue, climate change is complicated, abstract and overwhelming. Multiple interdependent factors cause it, and it is nearly impossible to avoid contributing to it in our daily lives. Buying products, driving a car or taking a flight for a foreign family holiday (full disclosure: I’m just back from one) all add to the overall problem. The solutions to the climate crisis are also interdependent and complicated. The positive changes we can make as individuals can feel insignificant, especially compared with large countries’ continued pollution. The European Commission’s Annual Report on European SMEs 2021/22 – SMEs and environmental sustainability identified access to finance, limited expertise and skills, and regulatory and administrative barriers among the challenges facing SMEs in particular. Businesses that want to take climate action often have limited time, cash flow, resources and support (both financial and non-financial) to take action. Knowledge is also a barrier. Many professionals qualified at a time when climate change was not identified as a business risk. They now find themselves having to skill up mid-career in an area that is famous for changing frequently. Finally, many citizens and businesses are still struggling with crises related to COVID-19, inflationary pressure, supply chain disruption and high energy costs. Staying afloat is a crisis in itself. Firms, particularly SMEs, focusing on the practicalities of running a business, paying staff and grappling with cash flow and costs are more likely to see climate action as the responsibility of governments or, at the very least, large corporations rather than them. On top of that, climate discussions are often politicised. They are regularly reduced to a ‘them vs us’ polarised debate in mainstream media rather than discussing how everyone can work together to deliver solutions. Threats and opportunities For businesses, climate change presents both threats and opportunities. Threats The threats have been categorised as physical risks (both ‘acute’ and ‘chronic’) and transitional risks. Opportunities Taking action on the climate crisis enables businesses to restore lost ecosystems, improve air quality, community health and well-being, and avail of the opportunity to make a lasting positive impact. There are additional advantages to consider: Reduced costs – the Sustainable Energy Authority of Ireland (SEAI) estimates that the average SME can save up to 30 percent on its energy bill by becoming more energy efficient (improved heating and lighting, lower maintenance of electric vehicles, efficient water and materials management and using recycled materials with a lower climate impact all contribute to lower costs); Reduced reliance on exposure to fluctuating oil and gas prices from switching from fossil fuels (coal, oil and gas) to renewable energy sources; Reduced exposure to carbon tax, which is increasing €7.50 per tonne to €100 per tonne in 2030; Access to grants, allowances and tax reliefs; Improved access to capital and finance from investors and lending looking to ‘green’ their portfolios; and A competitive edge in attracting talent, clients and customers. Steps to climate action Businesses looking to take action on the climate crisis can take several steps: Build your knowledge. There are many resources out there, several provided by the Government and Chartered Accountants Ireland. Begin measuring emissions with tools like the Government’s Climate Toolkit for Business. Consider an internal energy audit to find ways of reducing your carbon footprint. SEAI maintains a list of registered energy auditors and offers SMEs a €2,000 voucher towards the audit cost. Consider setting up an internal environment and climate impact team to devise a decarbonisation plan. See also the Sustainability Glossary in the Sustainability Centre of the Chartered Accountants Ireland website. For more, see www.charteredaccountants.ie/sustainability-centre/sustainability-home Susan Rossney is Sustainability Officer at Chartered Accountants Ireland Reporting and climate change The Corporate Sustainability Reporting Directive (CSRD) is an EU Directive requiring certain companies to disclose information on sustainability-related impacts. It proposes significant changes to how entities report on their business’s environmental, social and governance (ESG) impacts. These changes will affect many enterprises – directly and indirectly. Businesses ‘in scope’ of the CSRD are required to consider their supply chain when reporting on sustainability matters. This will mean that companies not in scope that form part of a supply chain may be asked to provide climate-related information by companies in scope. Small companies should prepare for this and have a mechanism to measure and disclose their carbon emissions. For more on the CSRD, see the Chartered Accountants Ireland Technical Hub. Dee Moran is Professional Accountancy Lead at Chartered Accountants Ireland

Aug 02, 2023

Careers

Pride 2023 - How far have we come?

As this year’s annual LGBTQ+ celebration begins, we talk to six BALANCE members about their experiences in life and work As Pride celebrations kick off all over the world this month, six members of BALANCE, the Institute’s LGBTQ+ Allies network group, tell us about their experiences and what employers can do to support true equality. Eimer Proctor Senior Manager When I first came out, Pride felt like a celebration and a safe space to be myself. Over the years, I’ve come to appreciate that this is not always possible, but I respect the path that has been forged by others to get us where we are today. During Pride 2023, I will remember those who lost their lives and stand in solidarity with my LGBTQ+ community around the world who still face persecution and continue to fight for their right to be who they are. It’s eight years since Ireland achieved marriage equality, and yet it was only in January 2020 that the law in Northern Ireland finally caught up. Given our current political situation in Northern Ireland, it’s unlikely that we will see any further advancements in LGBTQ+ rights and equality in the near future. I find this very concerning given the rise in hate crimes, conversion therapy and anti-trans rhetoric in the media. It is up to everyone to help end discrimination for the LGBTQ+ community and promote equality. There has been some great progress in recent years concerning diversity and inclusion in the workplace, but there is still work to be done to protect LGBTQ+ employees and at the heart of this is education. Employers can introduce diversity and inclusion policies and practices, for example appoint diversity champions and work with employees to help them understand the appropriate language they should use in the workspace. Liaising with employees in the LGBTQ+ community and their allies is vital to understanding the obstacles the members of this community face every day. This, in turn, facilitates a greater understanding of how and why diversity and inclusion policies can directly impact business. Those employees will, in time, become more comfortable to be themselves within their workplace, as they navigate the corporate world with the full support of their employer. Having these policies in place will also help to attract talented candidates, who will be carefully considering organisations with a strong commitment to diversity and inclusion. Conor Hudson Finance Director It’s a general perception that Pride means ‘celebration’ and ‘party’. And, yes, this is a part of Pride – a platform to be yourself and express yourself, but still people are also joining Pride to ‘protest’ and it is important to remember that Pride started as a protest. Equality for LGBTQ+ colleagues in the workplace isn’t about sticking up a rainbow flag at the start of June. Last year, in my organisation, a colleague and I launched an LGBTQ+ Employee Resource Group (ERG) with the intention of discussing Pride. While the initial reaction was positive, one response we received was, “We support LGBTQ+ rights; why do we still need to talk about Pride?” This remark justified why we needed an ERG – to increase visibility and offer a safe space to LGBTQ+ colleagues and colleagues with LGBTQ+ family. It is important for employees to feel part of an open and inclusive workplace from day one and allyship helps support this. One of the actions we have taken to demonstrate visible allyship is to create MS Teams backgrounds and badges to highlight that this person identifies as an ally. We have found these a useful tool during recruitment and first introductions. Allyship and open workplaces not only positively impact LGBTQ+ colleagues but can also support colleagues with LGBTQ+ friends and family. Creating safe spaces for allies is equally important. They can’t be expected to know all the answers and they should be able to ask genuine questions without being judged. This culture not only creates open environments for LGBTQ+ colleagues, but also for other intersectional aspects of diversity. Hugo Slevin Head of Function Pride is a great day for us as an LGBTQ+ community, along with our allies, to come together and show unity, and strengthen through open visibility. It is always around this time of year that we start hearing the same question, “Why do we still have Pride?”, but I think it remains such an important day as shown by events over the past 12 months. First, we continue to witness attacks against our community members in ever-increasing numbers. Attacks across Europe are currently at a 10-year high and recent media coverage in Ireland has again brought this sharply into focus. As a community, we should be able to feel safe in expressing and being who we are. Pride is very much our time to come together and have a platform to vocalise and display these concerns. We have also witnessed attempts to control the narrative on gay rights across the globe. Of significant concern has been what appears to be a regressing of rights in parts of the US, where this downward trend seems set to continue. Even in Ireland, we have seen attacks on libraries and the cancelling of drag events in the last 12 months. Pride is the time of year during which our voices can be heard, and we stand against deliberate attempts to silence our community. Finally, Pride is fun! The streets of Dublin come alive – there is a real sense of occasion and happiness in the air. We get to walk the streets, dance and celebrate with our family, friends and co-workers. Jonathan Totterdell Major Programmes, Financial Services Pride in 2023 means a day of visibility and courage for both the progress we have made and the long path ahead for LGBTQ+ people around the world. Recent events such as anti-LGBTQ+ Bills being passed in Florida and – closer to home, the rise of the far right and their anti-LGBTQ+ rhetoric – remind us that progress can be rolled back quickly, and it is imperative that those who live in relative safety can make some noise for those who can’t, without fear of repercussions. Over the past decade, I think we have seen some huge successes with gay marriage, a more open culture and a focus by corporates among Ireland to bring diversity, equity and inclusion (DE&I) to the C-suite. The financial services sector has been making really impressive strides. While there is a business case for DE&I, and many studies have shown that it leads to improved return on investment, I would like to see corporates in Ireland mature on this front, continue to grow their social consciousness, and see DE&I as a positive without the need to prove its financial return. Employers are expected to be ‘all in’ on DE&I in 2023, having the uncomfortable conversations that sometimes come with this topic, appointing champions and including DE&I as part of their leadership ethos. Inclusion is key on the DE&I agenda. You can have a diverse workforce, but without active inclusion, you will be missing a vital ingredient. One thing I practice is to try to make sure everyone gets a chance to speak up at meetings and contribute ideas and viewpoints to decision-making. When people feel comfortable, they will be able to communicate their ideas more effectively. Padraig Kilkenny Finance Manager For me, Pride is first and foremost a celebration. It is also an opportunity to reflect on the struggles for equality, not only in our own country, but for LGBTQ+ people across the world. There is no doubt that Ireland has made considerable progress in terms of LGBTQ+ rights and fostering greater equality in recent years. Landmark victories such as the 2015 Marriage Equality Referendum and gender recognition legislation have increased visibility and acceptance across Irish society. The Ireland of today reflects a society that embraces diversity and supports LGBTQ+ rights. This has never been more evident than at Chartered Accountants Ireland with initiatives such as the BALANCE network and, more generally, with its support for diversity and inclusivity initiatives. Personally, I am fortunate that I have never felt discriminated against in the workplace, but this is not to say that discrimination does not exist. What I have found helpful in my career is having LGBTQ+ representation at senior levels of the organisation and feeling that I have support from my colleagues and leadership. I think this support can come in many forms from the highest levels where diversity and inclusion form part of the organisation’s strategy, values and by extension its culture, to more practical efforts, such as establishing and enforcing inclusive policies that protect LGBTQ+ employees from discrimination in areas like recruitment, promotion and benefits. Effective allyship is more than just having policies and strategies in place. It is about supporting and advocating for the rights, well-being and inclusion of LGBTQ+ employees. Everyone should understand and challenge their own biases through education and listen to LGBTQ+ colleagues, valuing their experiences, and amplifying their voices and perspectives in discussions and decision-making processes. Pride is a great marker in the calendar for employers to stop and reflect where they are on this journey to foster and support real equality across the board. Áine Crotty Audit and Outsourcing Manager As a leader of a team in my workplace, I believe in the power of people and the true potential that is inside each and every one of my colleagues regardless of their gender, age, sexual orientation, etc. Therefore, being an ally to my LGBTQ+ colleagues is important to me because it supports them in reaching their full potential. Non-LGBTQ+ professionals need to be aware of their actions and any potential bias they might have – without the awareness, there cannot be any action or change. I would recommend attending events such as those organised by BALANCE so you can become aware of the issues your LGBTQ+ colleagues are facing. There are also some fantastic resources and training out there about unconscious bias that will enable you to change the language you use or how you perceive and treat your colleagues. After awareness comes accountability. As a non-LGBTQ+ professional, hold yourself accountable to making your work environment a more inclusive place for your colleagues. Make a commitment to yourself and others to change how you act with your LGBTQ+ colleagues for the better. Become an ally and be open and proud of that fact. Letting your colleagues know that you are an ally, and that you fully support them, can make them feel more comfortable in the workplace and allow them to speak more freely about any issues or discrimination they might be facing. It is widely known and accepted that culture comes from the tone at the top. Leaders, whether it be partners or senior executive management team members, need to bring DE&I to the forefront of their agenda. They need to live and breathe what they believe in and what they are trying to achieve for their employees. They need to lead by example and visibly demonstrate their belief in equality for all.

Jun 02, 2023

Member Profile

“We need to value our contribution as women more because we often undersell ourselves”

Ann-Marie Costello became the first female partner on the Corporate Finance Team at Grant Thornton earlier this year. Her advice to other women? Back yourself and take opportunities I grew up in a family of medical professionals, so accountancy was not necessarily the expected path. I actually changed from veterinary to commerce and German the day before the CAO application process closed, so my career could have been very different. Opting to do a degree in commerce and German gave me time to decide what I wanted to pursue as a career. I found I really enjoyed the economics and accountancy modules, so it felt like a natural progression to go on to do the Master of Accounting at UCD Smurfit School before taking up a training contract with KPMG Corporate Recovery. At the time, the accountancy ‘milk round’ was more geared towards traditional audit and tax routes, so joining an advisory team was the path less taken, but I really wanted the commercial experience that came with it. Hitting the ground running Having a solid background in accountancy meant I could hit the ground running in Corporate Recovery and I had great training working on trading insolvencies. After qualifying and becoming a manager with KPMG, I left Ireland for a year of ‘anti-reality’, travelling the world. When I returned, I met with Grant Thornton’s Debt Restructuring Team, who were pivoting away from insolvency. I liked the team and the idea of working to bring businesses back onto a stable footing. After a few years, I transitioned to Corporate Finance and I made Partner in January of this year, becoming the first female partner in the department. These days, my work is focused on helping shareholders to position themselves for the sale of a business and to maximise value. Most of my work has an M&A or due diligence focus. So, in my career so far, I have been able to work with businesses across the entire economic cycle. Fall-off in female talent It just so happens that the areas in which I have worked have been particularly male-dominated, especially at senior levels. My intake and training contract had a healthy mix of female versus male trainees but, from the manager level onwards, I saw a fall-off in female talent. The reasons for the fall-off vary, ranging from the lack of a clear path for career progression, lack of support or mentorship, and movement from practice to industry, to work-life balance considerations and family commitments. The diversity, equity and inclusion (DE&I) agenda was not well-developed when I was training, and as that has begun to change in more recent years, I think that it has brought some significant benefits. I do believe we have seen a move towards greater equity at senior levels – although the pace of change is slower than we may like, I think we’re getting there. We do need more balanced representation to attract younger generations – the ‘if you can’t see it, you can’t be it’ adage. Greater supports are needed in the form of allyship and mentorship, as well as ensuring the wider conditions to support talent retention are met – these include issues such as childcare, paternity leave (both availability and take up) and flexible working. There are wider societal shifts that need to become the norm to level the playing field further. Gender pay gap reporting Gender pay gap reporting has been a welcome development in terms of driving good behaviours within business and providing employees with greater transparency. However, nothing can substitute the conversations on the ground that can provide you with clarity as to where you stand. Conversations regarding remuneration, promotion and performance are often uncomfortable, so we sometimes tend to avoid broaching these subjects. Time and time again, recruiters and HR teams tell me that, as women, we often undersell ourselves and have lower expectations for remuneration. We need to value our contributions more. Do your research, back yourself and don’t be afraid to step out of your comfort zone to take on opportunities as they present themselves. Learning the skills for success At some point in your career, you will need to do more than just to be ‘good at the job’. At that stage, developing your career becomes about your network, your profile and your leadership. It is important to learn to have confidence in yourself and to value your input. This often comes with surrounding yourself with the right people, so don’t be afraid to talk – to your peers, your friends and your network. You will only ever regret the things you didn’t do, or say, so speak up and say ‘yes’ to opportunities for development. In my own experience, navigating career development and parenthood is not without its challenges. You need all the support you can get and to always try to look after yourself. We just had our second baby towards the end of last year, a year during which I was also going through the partnership process, as well as taking on the role of Chairperson of Chartered Accountants Ireland Leinster Society. I took on a lot, but there were several opportunities that presented themselves around the same time and, weighing it all up, I chose to go for them. I am lucky in that I have huge support from my family and, in particular, my husband, who had to pick up some of the slack. The role of mentoring and networking I sincerely believe that mentoring and sponsorship are key to development, and I’m glad to see so many businesses providing necessary resources and supports in these areas. It’s important to have someone who can mentor you – someone who will tell it how it is, act as your sounding board and provide constructive criticism. It is equally important to have a sponsor within your organisation – someone who will support you and guide you in your career development. I would encourage these relationships to be with both male and female mentors and sponsors. It can often be helpful to have a mentor outside of your work environment to speak to about your work and personal development. Chartered Accountants Ireland provides a mentorship programme for members, which is a helpful resource. Networking can seem like a daunting task, particularly with the reopening of society post-pandemic. However, it really is never as bad as it seems. The network of people Chartered Accountants will have from their time at university and training will be huge, and the Irish accountancy profession is particularly well-connected at home and abroad. Try to keep this network active. You never know when you might be able to help someone, or when they might be able to help you.

Jun 02, 2023

Management

2022 All-Member Survey

Dec 02, 2022

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Strategy

Getting IPO-ready in 2024

A successful flotation is a major milestone for any ambitious company but the path to IPO-readiness is paved with challenges and careful preparation is crucial, write Ciara O’Callaghan Crehan and Eimear McDermott The public markets are a bellwether for economic confidence at any point in time and we have witnessed a challenging period for equity performance and new issuances recently. While the public markets offer just one source of potential funding for a business, an Initial Public Offering (IPO) is seen by many as a particularly significant milestone for promising businesses and IPO activity as an indicator of wider economic health. There are numerous reasons why companies may want to list on a stock exchange. These include access to a new pool of capital to help take them to the next level, enhanced profile and prestige, a clearly defined business valuation and a route to exit for founders and shareholders. Raising capital through the public markets takes time and lots of preparation, however, particularly in a period of prolonged economic uncertainty. Current IPO market conditions The current IPO drought has persisted for more than 18 months, but this doesn’t mean pre-IPO companies should be inactive. Rather, we would suggest taking advantage of the current lull to prepare now for a public offering further down the line. Already, we are starting to see the first green shoots of recovery. The third quarter of 2023 produced 36 IPOs that raised a combined total of about $8 billion. This was the same amount of proceeds raised for the full year in 2022 and was led by the largest tech offering in years, ARM, which raised approximately $4.9 billion. In particular, we are seeing a growing number of large corporates opting to consolidate their market listings on – or undertake a general move to – US markets. While this is not good news for stock exchanges in Ireland or Europe, it demonstrates the continued dominance of the US capital markets for access to funding. The next wave of IPOs will be led by those companies that do the hard work of preparation today, readying themselves for amplified scrutiny and accountability and working to make the necessary corrections big and small. Choosing the right stock exchange Many factors play into the decision on where to list a company, including: Access to capital, which is critical – in many cases companies will decide to list on multiple exchanges to broaden their investor base; Market visibility and the reputation of the exchange, which may be known for a particular focus area; Liquidity and trading volumes; Regulatory requirements, which differ significantly across markets – the US capital markets are the most onerous from a compliance perspective but are more attractive to many stakeholders, from suppliers to employees and particularly to investors; and Expansion into new markets and peer group comparison. What it takes for a successful IPO Any successful IPO needs a compelling equity story. In the current environment, IPO candidates need to be able to demonstrate a resilient trading performance and compelling strategy for future growth to tempt investors. It is also important that the valuation expectation is reasonable. With a particular focus on the US market, some of the key steps in a successful IPO journey include: Ensuring you have a first-class management team and advisors; Getting your IT systems and control environment in order; Improving your financial reporting and getting audit-ready; Addressing change through a people-centric transformation programme; and Addressing environmental, social and governance-related performance and strategy upfront. It’s a team game The path to becoming a public company depends on a coordinated team effort by management and external advisors. In our experience, which spans both sides, we believe there are several critical ingredients to success: An experienced management team, ideally with some IPO experience that can build a strong equity story during the roadshow; External advisors with IPO credentials, contacts and industry experience; and A structured transformation of the people, processes (with a particular focus on technology) and culture of the company. IT capacity and controls Companies should not overlook or underestimate the ‘heavy lift’ needed for readying their IT systems ahead of a planned IPO. Some of the IT systems and tools commonly used by private companies in many cases cannot scale to meet the technology requirements of a public company. Many companies face fundamental challenges in understanding their existing IT landscape and the interdependencies that exist between the different elements therein. This is particularly important because you cannot expect to achieve a robust internal control framework for financial reporting without a strong partnership between the IT and finance teams. It takes a coordinated approach – with informed, experienced leadership – to break down silos and ensure that everyone is speaking the same language. Getting the governance right at the outset is a prerequisite for successfully establishing and embedding your control framework. Companies that have not historically invested in technology and tools for financial reporting and business operations might struggle with the limitations of their existing technology if this is not addressed as a priority at the outset. Assessing IT across people, processes and systems is critical. Taking a risk-based approach – and strategically sequencing your transformation initiatives – is equally important. Early in the preparation phase is the time to get the fundamentals right, and to ensure that each step of your transformation is aligned to your IPO target state. Companies should be incorporating audit and control requirements into their procurement decisions when looking at investment, alongside business, information security and other assessment criteria. Financial reporting and audit The level of auditor scrutiny on public companies is high and ever-increasing. Therefore, getting your company’s historical accounting and controls in order is essential pre-IPO. As already mentioned, it is critical to have the right technology in place here alongside the right people – and to give them sufficient lead time to do the work needed. In preparing for the rigours of an IPO, an auditor may have to re-audit parts of prior years’ accounts and update procedures to meet the higher standards expected of a public company. They will likely have to update controls and processes and document all key controls. It is an arduous process and one that cannot be rushed. Early engagement with the audit team is important. In our experience, bringing your auditor into the fold at agreed milestones can be hugely valuable in ensuring continuous alignment and avoiding any unexpected curveballs as you navigate the IPO journey. Tailored people-centric approach An IPO journey will have its challenges. It requires major transformation involving upgrading technology, improving financial reporting processes and implementing governance, risk and compliance capability. All are critical. So too is a people strategy that sets out the vision for a collaborative and supportive post-IPO culture incorporating diversity, equity and inclusion as well as helping to guide how the business plans to achieve its environmental, social and governance (ESG) goals. And finally, ESG As ESG continues to gain momentum, it is becoming a fundamental consideration for companies making strategic decisions in areas including funding. Integrating ESG reporting into the equity story has become key for investors and, consequently, it is an increasingly important aspect of the IPO readiness plan for issuers. This is especially true in Europe where regulatory requirements for listed companies will become mandatory as the European Union’s Corporate Sustainability Reporting Directive (CSRD) comes into effect. An ESG strategy is now a must-have for any company considering an IPO. Becoming a public company and raising funding on the capital markets has always required lots of work and preparation. Alongside a company’s equity story, financials and governance, there is now a broader focus on technology, culture and people strategy as well as ESG commitments and performance. The current market lull could provide just the ‘pause’ some companies need to prepare thoroughly for a successful flotation and future growth. Ciara O’Callaghan Crehan and Eimear McDermott are co-founders and directors of Odyssey Consultants, a boutique risk and management consultancy for helping companies at all stage of their journey reach new horizons

Dec 06, 2023

Communications

Brand-building for competitive advantage

Apr 11, 2023

Member Profile

Distilling the dream

Dec 02, 2022

Strategy

Harnessing the human advantage

Dec 02, 2022

Strategy

Standard-setting board reform, one year on

Bríd Heffernan provides an update one year after the Monitoring Group issued its proposed reforms to international standard-setting boards. In July 2020, the Monitoring Group issued its much-anticipated paper outlining reforms to the international standard-setting boards – namely, the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA). This article will reflect on the reforms proposed in the July 2020 Monitoring Group paper and analyse where the reforms stand one year on. The journey so far The Monitoring Group is a group of international financial institutions and regulatory bodies committed to advancing the public interest in international audit standard-setting and audit quality. The last set of reforms faced by the standard-setting boards were agreed to in 2003 by the International Federation of Accountants (IFAC) and the Monitoring Group. These 2003 reforms created the Public Interest Oversight Board (PIOB), which was tasked with increasing investor and stakeholder confidence in the standard-setting boards and ensuring that standards are responsive to the public interest. The 2003 reforms put IESBA and IAASB under the oversight of the PIOB, thus making them independent of IFAC. This, in turn, led to IFAC providing support to the standard-setting boards. The proposed July 2020 reforms do not change this structure, but they do propose changes to address the Monitoring Group’s concerns. Effectiveness reviews were built into the 2003 reforms. Every five years or so, the Monitoring Group conducts an effectiveness review and makes recommendations to improve the system. In the early reviews, the recommendations were made and agreed upon, and enhancements were implemented. However, the most recent review in 2015 resulted in the 2017 Monitoring Group consultation paper. Since then, there has been extensive discussion between the Monitoring Group, IFAC and other stakeholders culminating in the issuance of the July 2020 Monitoring Group paper. Monitoring Group concerns The July 2020 Monitoring Group paper titled Strengthening the International Audit and Ethics Standard-Setting System set out recommendations for reforming the standard-setting process. Below is an overview of the Monitoring Group’s main concerns that led to the recommendations, which are also discussed later in this article. The public interest is not given sufficient weight throughout the standard-setting process. Stakeholder confidence in the standards is adversely affected as a result of the perception of undue influence of the accountancy profession on the following two grounds: IFAC’s role in funding and supporting the standard-setting boards and running the nominations process; and Audit firms and professional accountancy organisations providing the majority of standard-setting board members. Standards are not as timely and relevant as they need to be in a rapidly changing environment. IFAC’s response As IFAC operationally runs the standard-setting boards, the Monitoring Group’s concerns and recommendations directly impact IFAC. In an update to its members, IFAC’s Chief Executive, Kevin Dancey, stated that IFAC was focused on agreeing on a workable set of changes that would enhance stakeholders’ trust and confidence in the standard-setting process. These reforms also provide an opportunity for IFAC to address its own issues with the current process, which are: That PIOB members are almost exclusively from a regulatory background. IFAC believes that the PIOB should have a multi-stakeholder composition and perspective. That the PIOB must be more transparent, and there is a need for clarity on its role and the role of the standard-setting boards and how the PIOB carries out its mandate. 2020 recommendations The July 2020 Monitoring Group paper proposals retain the two standard-setting boards with the same mandates, and they will be retained in a similar size (16 members, down from 18 members). The respective roles of the PIOB and the standard-setting boards are also clarified. The Monitoring Group’s proposals clarify that the standard-setting boards are responsible for developing, approving and issuing the standards. The role of the PIOB is oversight. Combined with making the workings of the PIOB more transparent, this is a step forward. Responsibility for ensuring that the standards were responsive to the public interest was a source of confusion in the past. Was this the responsibility of the standard-setting boards or the PIOB? The July 2020 Monitoring Group paper contains a public interest framework, which confirms that it is the standard-setting boards’ responsibility to certify that the standards are responsive to the public interest. The PIOB will also have to certify that the standards are responsive to the public interest as part of its oversight function. Both the PIOB and the standard-setting boards will have a multi-stakeholder composition. For the PIOB, this means that its members will not simply be representatives of the Monitoring Group members. And for the standard-setting boards, this will ensure a diversity of views at the standard-setting table. Recognition of the significant role of both IFAC and the accountancy profession is a key improvement over the 2017 consultation paper. Current practitioners can still become members of the standard-setting boards, up to a maximum of five practitioners. Impact of the changes on IFAC With respect to IFAC, its ongoing role has been acknowledged in the July 2020 Monitoring Group paper: IFAC will continue to provide operational support to the standard-setting boards, the only difference being that it will be set out in a formal service level agreement. IFAC’s role in adopting and implementing the standards, promoting the standards, and monitoring their adoption and implementation has been acknowledged as an important ongoing responsibility. There will be a change to the nominations process for IAASB and IESBA members, however. The process is currently run by the IFAC Nominating Committee, which is chaired by the IFAC president. To ensure adequate independence in the nominations process and ensure good governance, the July 2020 Monitoring Group paper recommends that the nominations process sit under the supervision of the PIOB. The legal structure will also change. Currently, the standard-setting boards are committees of IFAC. The July 2020 Monitoring Group paper calls for the standard-setting boards to sit under a separate legal entity, independent to IFAC. Furthermore, changes have been recommended to the staffing model for the standard-setting boards. The proposals call for an increased staff complement and for staff to have greater responsibility for drafting the standards with less responsibility in the hands of the standard-setting boards. Since IFAC provides operational support for the standard-setting boards, this request for an increased staff complement will impact IFAC. Transition planning phase It was assumed by many observers that, with the issuance of the July 2020 Monitoring Group paper, all would be known. However, five years after the initial review, the reform process is only at the end of the beginning, seeing as many of the details remain unresolved. According to IFAC, the July 2020 paper is a significant improvement on the proposals outlined in the 2017 consultation paper. It is evolutionary rather than revolutionary. It sets out several high-level recommendations and principles that can be worked with. Right now, IFAC and the Monitoring Group are in the transition planning phase of the reforms – but many outstanding items must yet be worked through. The transition planning phase consists of IFAC and the Monitoring Group developing an implementation plan by participating in 26 workstreams. The goal is to work through all outstanding issues and finalise the recommendations in 2021. The implementation of the recommendations will then take place over the next three years, up to 2024. The changes will be phased in to ensure a smooth transition and no disruption to the current standard-setting process. Funding of the reforms It is clear from the July 2020 paper that there is no new funding model. The profession’s resources were stretched before COVID-19, and this limitation will be exacerbated post-pandemic. This represents a significant fiscal constraint on implementing the reforms. IFAC’s funding for 2021 is down 13.5% from 2018, and there is no improvement anticipated in the funding outlook beyond 2021. Therefore, a key challenge is to reconcile the cost of the Monitoring Group’s recommendations to the funding available. Next steps As noted, the process is currently in the transition planning phase. The goal is to resolve all outstanding issues in 2021 while reconciling the cost of the recommendations to the funding available and reaching a deal on the phased implementation of agreed changes by 2024. While there is a long way to go before the reforms are implemented, it is positive to see progress that ultimately serves the public interest. Bríd Heffernan is Associations & Institutions Leader at Chartered Accountants Ireland.

Jul 29, 2021

Strategy

SCARP: a simplified safety net for SMEs

David Swinburne outlines the practical considerations for members as they prepare to deal with the Small Company Administrative Rescue Process. With the much-anticipated legislation for the Small Company Administrative Rescue Process (SCARP) ready to be enacted, it will be interesting to see how the process evolves. SCARP aims to rescue struggling businesses that form the backbone of the Irish economy – small and micro companies. These SMEs provide the greatest number of jobs in Ireland. The process, by and large, mirrors the successful examinership process, which has been around for 30 years. However, the costs associated with SCARP are expected to be significantly lower than those associated with examinership. Under SCARP, there is no automatic involvement of the Court. Therefore, the costs associated with legal representation for both the company and the examiner are not applicable. Under SCARP, a company does not have protection from its creditors. However, there is the comfort that the Court is there should it be required. Of course, if recourse to the Court is required, costs will increase. What should a company or its external accountant be doing now? In a typical examinership case, there is invariably some event that occurs at very short notice or an unforeseen shock that pushes the company into insolvency. This, in turn, leads to an urgent application to Court for protection and the appointment of an examiner. Thus, the process for the duration of the examinership becomes a pressure cooker. For SCARP to be successful, planning at a very early stage and engagement with an insolvency practitioner (known as the ‘process advisor’ under SCARP) is vital. The insolvency practitioner will need to quickly assess whether or not the company is a suitable candidate for SCARP. The company can only be a suitable candidate if it has the prospect of survival, which means that it must be viable. Before commencing the SCARP process, the company will therefore need to determine (in as far as it can) that there is a strong likelihood that it will emerge successfully out the other end. For this, it must have a viable core business and source sufficient financial resources to fund the SCARP (if its creditors are to be settled immediately instead of over a period of time). The company’s stakeholders will want certainty on the outcome for them. This will form their decision as to whether or not they will support, and therefore vote in favour of, the SCARP. Fail to plan, plan to fail Early engagement with an insolvency practitioner will also allow them to identify creditors that are likely to be more challenging to deal with in the SCARP due to the complexity of the contractual relationship between such a creditor and the company. Such creditors may include landlords and others to whom the company has more onerous obligations. These creditors can be dealt with under SCARP (subject to their consent). However, if the issues are likely to be difficult to resolve, an application to Court may be required. Identifying such creditors before the process begins will be crucial in setting out the options and, consequently, the further anticipated costs that may arise in dealing with them. Based on recent applications before the High Court, it is evident that the Court will want the company to endeavour to engage with creditors and attempt to resolve difficulties before bringing the matter before the Court. Therefore, the Court should not be the first port of call in resolving issues with any creditor. Excludable debt The possibility for State creditors (with a particular focus on Revenue, which is likely to be a creditor in any SCARP scheme) to opt-out of the process has generated mixed reactions. In my experience, however, Revenue is not a blocker. Instead, it is – and will continue to be – supportive of company restructurings, whether informal or formal (i.e. SCARP or examinership). For Revenue to take such a supportive stance, the company and its directors will need to have a compliant and transparent record in their dealings with Revenue. Therefore, companies must continue to meet their Revenue filing obligations – even in circumstances where the company has warehoused debt and is not in a position to discharge its ongoing taxes as and when they fall due. Directors’ duties Under SCARP, there is a requirement for the process advisor to report any offence to the Director of Public Prosecutions (DPP) and the Office for the Director of Corporate Enforcement (ODCE). It is therefore vital that all directors act honestly and responsibly at all times. When will SCARP cases commence? There is a view that as long as COVID-19 State supports are in place, companies will not succumb to the pressure that they may face after the removal of all State supports. However, not all Irish entities are receiving State support. And those that are not are heavily reliant on their trading partners to discharge their obligations to ensure their own survival and future success. Formal insolvencies are at an all-time low. Given the impact of the last 17 months on the economy, you would expect insolvencies to have increased, not decreased. There is no doubt that the various extensive State supports, coupled with payment breaks and holiday periods from other key creditors and stakeholders, have ensured the continued survival of businesses that would otherwise have run out of cash. As the ‘new normal’ continues to be rolled out and we all adjust and adapt, creditors will be forced to become more active in their efforts to collect cash and recover amounts owing. This is when a company becomes vulnerable in terms of its future survival and direction, as its creditors start to take matters into their own hands. Control in terms of survival will quickly switch from being with a company to its creditor(s). Therefore, as highlighted above, early engagement with an insolvency practitioner and an assessment of SCARP as a credible option is a must. Time-frame The end-to-end time-frame for a SCARP is much shorter than examinership (70 days versus 150 days), which means that much preparatory work will take place before the SCARP is formally kicked off by the directors via a resolution and the appointment of the process advisor. Getting difficult and challenging creditors onside is time-consuming. If certain creditors are unlikely to be supportive before the commencement of the SCARP, it is more likely that they will object to it. This will result in an automatic application to Court to seek approval for the SCARP, which impacts the certainty of the outcome for the company, its employees, and its consenting creditors. What should I do next? If one of your clients is struggling now or is highly likely to struggle in the future, or you own or lead an SME that is eligible for SCARP (see sidebar), you should consult now with an experienced insolvency practitioner. David Swinburne FCA is an insolvency practitioner and Advisory Partner at FitzGerald Legal & Advisory, Cork. SCARP eligibility An SME will be eligible for SCARP if it satisfies two of the following three criteria: Turnover of up to €12 million; A balance sheet of up to €6 million; and/or Up to 50 employees.

Jul 29, 2021

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