12 Big Challenges Facing Small Irish Businesses Today
Small Medium Enterprises (SMEs) represent 99.8% of all active enterprises in Ireland and, considering they also produce 37.3% of the Gross Value Added (GVA), they’re the backbone of the Irish economy.
Despite this, Irish SMEs are facing some tough times. This article will uncover 12 of the biggest challenges they’re currently dealing with.
SME issue #1: COVID-19
Not many businesses have escaped unscathed by COVID-19, but Irish SMEs have been hit particularly hard. In accordance with COVID regulations, SMEs have either had to enforce social distancing measures or even been forced to shut-up-shop altogether. The impact of this has been astronomical, with revenue shortfalls for 2020 reportedly falling between €10.3bn and €11.7bn across the entire Irish SME sector.
SME Issue #2: Brexit
The British public’s vote to exit the European Union has brought huge uncertainty to all businesses, especially SMEs. It’s also lead to cautious spending across a range of targeted markets. On top of that, UK nationals that work in Ireland, as well as Irish nationals that work in the UK, are still unclear about whether they can stay long-term. Social security arrangements and pension schemes are likely to be impacted, with companies large and small having to consider the possibility of work permits and visas being required for existing staff.
Then of course there’s the exchange rate. Brexit uncertainty has meant sterling’s value has decreased sharply, which is already affecting businesses in the Irish Republic. Imports are rapidly becoming cheaper, which is good news for businesses that buy supplies from the UK, but exports are now more expensive. This means that companies looking to sell to UK customers from their Irish base are going to take a substantial hit.
SME Issue #3: Cashflow
A major issue facing the majority of SMEs across Ireland is cash flow irregularity. In fact, it’s been proven that over a third of Irish SMEs are struggling with cash flow. Cash flow irregularity makes forecasting incredibly difficult and whether a small business is brand new or well established, cash flow problems can quickly affect profitability, financial arrangements and reputation.
After the 2008 financial crash, many businesses had to be rebuilt from the ground up. However, SMEs found that limited cash flow seriously affected not only their expansion plans but their immediate viability. Nowadays, although the effects of the financial crash are less stark, banks are still wary about lending to smaller businesses.
SME Issue #4: Staffing issues
For Irish SMEs, hiring, training and retaining good employees can be a minefield. The brightest, most qualified and driven team members are usually tempted away by bigger competitors. Plus, with Brexit looming, SMEs may also find that they lose the staff members who need work permits to stay.
SME Issue #5: Competition
Dealing with the competition is a normal part and parcel of running a business, but it’s something that many struggle with. SMEs specifically run the risk of clients leaving to go elsewhere, particularly if larger companies, with more resource, can provide a better, more dedicated service or undercut their prices.
SME Issue #6: Stability
With stiff competition comes a difficulty to maintain customer loyalty. Saturated markets, fickle customers and a strong buyers power means that many Irish SMEs struggle to build a loyal customer base, especially in the beginning. This can present a major challenge when it comes to cash flow and profit.
SME Issue #7: Regulations and guidelines
When it comes to government laws and guidelines nothing stands still – this is particularly the case with employment law and also health, safety and compliance. Although such updates are essential for workers and clients, they’re often time-consuming and expensive to implement, especially for SMEs who have limited resources.
SME Issue #8: Time
Typically, SMEs don’t have the budget or hiring capability that larger companies tend to have. This means they often need to wear lots of different hats, spin multiple plates and take on numerous roles and responsibilities, just to keep their head above water. Fitting everything in and still having time for a life outside of work can be a luxury they often can’t afford.
SME Issue #9: Strategy and forward planning
When money and time are stretched, it’s easy to get engrossed in the day-to-day tasks and general upkeep of the business. This means that planning for the future often gets deprioritized in favour of simply keeping the business afloat. Making the time to develop and then continuously review and update a strong strategic plan is vital - but not always easy to prioritize.
SME Issue #10: Marketing
Marketing is key to business success. If you can’t get your message out to your customers, they won’t know you exist. This will inevitably result in a lack of sales. However, because customer loyalty is scarce and there are so many brands fighting for market share, effective marketing initiatives often require expert skills, experience and knowledge. This is an expense that many small Irish businesses simply can’t afford.
SME issue #11: Disposable income
Thanks to COVID-19, an increased cost of living, high rents and a slow wage growth rate, disposable income for Irish consumers has dropped by 25% over the last year and consumer spending has declined by 36%. Potential customers or clients don’t have the same levels of disposable income that they used to have and this has, unsurprisingly, affected SMEs dramatically.
On top of a drop in disposable income, Irish SMEs are suffering from high overhead costs, rent, insurances and regulatory compliance. This combined with the explosion in popularity of online shopping means that smaller, local businesses with narrower margins can really struggle to stay afloat. It can easily feel like tax breaks, benefits and resources tend to flow towards the bigger, corporate giants and away from the small, local Irish businesses that need it.
SME Issue #12: Investing in growth
The only way an SME can thrive long term is to grow and innovate - but that requires cash. Research and Development (R&D) Tax Credits is a revenue-backed scheme that is designed to encourage innovation across all business sectors in the Republic of Ireland.
Qualifying R&D expenditure claimed through this scheme will attract a 25% tax credit, as well as a lower rate of Corporation Tax at 12.5%. This means that Irish businesses that undertake eligible R&D activities can claim a revenue refund of €37.50 for every €100 worth of R&D spent.
This effectively means that R&D Tax Credits reduce the cost of R&D by up to 37.5% in real terms - a massive leg up for SMEs.
Interested to find out more?
Talk to R&D tax relief experts
Submitting a successful R&D Tax Credit claim to the Revenue can be a complex process and mistakes can be costly.
Whilst many accountancy firms have probably had some experience with R&D tax claims, here at Tax Cloud (part of Myriad Associates), we specialise entirely in the R&D claims field.
This means that we can offer you the best help, support and up-to-date guidance. You can be safe in the knowledge that everything is as it should be.
Try our Tax Cloud calculator. With sections for both businesses and accountants, it’s a handy tool designed to show companies in the Republic of Ireland what R&D Tax Credits they can claim.
For more information or further advice, call us on +353 1 566 2001 or use our contact page and we’ll get right back to you.
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