Neil Hughes: SMEs are positioned at the heart of our nation’s economy, lest the Government forget

Few other countries in the world can boast of having a strong SME presence in every industry across the country, including in Ireland’s world class financial services industry.

Though the SME sector was one of the worst affected by the pandemic, it quickly got back on its feet. Embracing digitalisation and pivoting their businesses enabled SMEs to rebound quickly. Almost twice as many Irish SMEs are now selling online, compared to the EU average.

Supporting SMEs will make our economy more resilient

SMEs have the advantage of being agile, compared to larger firms. And the ability of SMEs to embrace calculated risk has played a key role in instilling the culture of entrepreneurship that has been the hallmark of Ireland’s economic success.

Buoyed by high levels of productivity and a focus on the future, they have helped to fuel an 8.2pc increase in modified domestic demand in 2022 and employment growth of 7pc.

As we look to the latter half of 2023, there remains much to be optimistic about.

Despite stubbornly high inflation and layoffs in the multinational sector, the latest Azets SME Pulse Survey reveals that fewer than one in five SME leaders anticipates a decrease in revenue and profits this year. This points towards the positivity that surrounds the future of SMEs in Ireland.

Owner-managed and family businesses are increasingly focused on driving innovation to secure future success. Digitalisation is now the number one business opportunity for SMEs. Embracing new ideas has helped Irish firms become successful global businesses, and it is key to adapting to a rapidly evolving world.

​There is a growing appetite among entrepreneurs to invest in the future of their business. Having previously used cash from the business or traditional bank loans to expand their operations, we’re seeing SMEs turning to the EIIS scheme, seed capital, private equity and venture capital for new investments.

That appetite to scale-up is likely to result in a growing interest in mergers and acquisitions for the remainder of the year. We’ve seen this in the insurance sector in recent months, with private-equity-backed brokers acquiring smaller brokers. That trend is set to expand into other industries and sectors.

This sense of optimism should not be mistaken for complacency. Challenges lie ahead. Every aspect of doing business is becoming more expensive. Rising prices are putting a squeeze on already tight margins.

The recent recommendation by the Low Pay Commission to increase the minimum wage by 12pc in January is estimated to add over €3,000 to the average wage bill for an employee. Many employers, especially in hospitality, will struggle with this.

Many SMEs are also struggling to attract and retain the talented people they need to embrace digitisation and bring new products and services to market at speed.

Although companies were kept on life support during the pandemic with the help of Government and the warehousing of tax, those debts will fall due in May next year.

Over 60,000 businesses will be forced to consider how to close this €2bn tax gap. It is likely that many will need to restructure using the tools available, such as accessing the Small Company Administrative Rescue Process (Scarp) or entering examinership in the Circuit Court.

Every day, our team of tax, audit, advisory and corporate rescue experts at Azets Ireland are helping owner-managed and family businesses across the country to prepare for these changes that lie ahead.

Through Budget 2024 we have a unique opportunity to start putting SMEs at the heart of Ireland’s economy.

That requires unique supports and investments by the Government that are laser-focused on nurturing SMEs so they can thrive long into the future, as well as tackling some short-term challenges.

With the slowdown in the level of foreign direct investment, the need to diversify Ireland’s economic model becomes all the more important.

It is clear to us in Azets that putting SMEs front and centre will make our economy more resilient and better placed to manage new risks that might emerge in the months ahead.

Massive budget surpluses currently provide a golden opportunity for this pivot to take place.

Achieving this will not be achieved in one government cycle alone.

A sustained strategy backed by ambitious measures and the support of Ireland’s business community will help us to seize the opportunity to create a balanced economic model. A model where Ireland’s ability to attract FDI is complemented by a thriving SME ecosystem where entrepreneurs are supported.

Embracing that model will enable SMEs to focus on what they do best – supporting jobs, fostering innovation and investing in Ireland’s future.

​Neil Hughes is CEO of audit and advisory business Azets Ireland