Despite rising inflation and interest rates, Ireland’s SMEs are prioritising innovation to stay competitive in a tough market, writes Neil Hughes
Inflation is the number one threat facing Irish SMEs at present (56%), followed by rising interest rates (40%) and the availability of talent (34%).
These were some of the main findings of the new Azets SME Pulse Survey undertaken with iReach, surveying senior leaders at 211 SMEs across Ireland in April and May.
Forty-three percent said they were expecting the economic climate to worsen over the next 12 months. Only 18 percent are expecting an improvement.
If economic uncertainty persists, one-in-three (36%) said they would consider cutting jobs.
It is clear that inflation is proving to be a significant challenge for SMEs throughout the country. Every aspect of doing business is becoming more expensive and rising prices are putting a squeeze on already tight operating margins.
Given the numerous challenges facing owner-managed and family businesses in Ireland, there is likely to be a greater number of SMEs needing support in the face of financial difficulty.
Rising prices, combined with the significant levels of tax warehoused during the COVID-19 pandemic that will fall due, mean that there are likely to be hundreds of SMEs facing financial difficulty that may need to be restructured.
I would encourage SMEs facing financial challenges to get advice on restructuring and find out if there are funding or finance options that might support their business.
The Small Companies Administrative Rescue Process (SCARP) or examinership could help save their business and the jobs they support.
The main sources of funding SMEs expect to avail of in the coming year include their own cash (24%) and government grants or subsidies (19%).
Just 13 percent are considering private equity, nine percent bank funding and four percent venture capital.
Forty-six percent of our respondents believe the government should provide additional grants and supports to help navigate the challenges ahead, and 35 percent want additional funding for skilling and upskilling initiatives.
Twenty-five percent of our SME Pulse Survey respondents told us they expect the tax burden to increase, while 10 percent expect it to fall.
When asked about the outlook for their own business, 19 percent said they expect their revenue and profits to increase in the year ahead, 63 percent expect no change and 18 percent are anticipating a decrease.
Despite the obstacles they are currently navigating, SME leaders believe that innovation will provide the greatest opportunity for their business over the coming six months.
It is encouraging to see SMEs remain optimistic about the future of their business and committed to pivoting their business models and embracing digitalisation to fuel growth.
There is no doubt that technology, whether for cybersecurity, data analytics, remote working, e-commerce or process automation, will be key to their ongoing resilience and competitive advantage. This will be critical as they continue to adapt to a rapidly evolving world.
The Azets SME Pulse Survey also reveals that only one-in-five Irish SMEs are currently measuring their carbon footprint.
They are beginning their sustainability transformation journey and ESG considerations will increasingly shape their business strategy – whether this is in the reduction of their environmental impact or promoting greater diversity.
Close to one-in-three SMEs are currently reducing the carbon footprint of their business. The main challenge they face in progressing their ESG goals is the cost involved.
With Ireland committed to becoming net zero by 2050, however, SMEs will have to adapt.
Neil Hughes is CEO of Azets Ireland
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