It is often said that SMEs form the backbone of the Irish economy. That’s no mere platitude – the statistics back it up. Defined as companies employing fewer than 250 people, SMEs make up 99.8 per cent of all businesses in Ireland and employ around 1.8 million people – almost 70 per cent of total employment in the economy. The vast majority (92 per cent) of these companies are microenterprises employing fewer than 10 people, while another 6 per cent are classified as small – employing fewer than 50.
The sector has demonstrated quite remarkable resilience in the face of a global recession, a pandemic, an energy crisis and sharply rising interest rates and other costs over the past decade or so.
“Irish SMEs and microenterprises are highly agile, nimble and adaptive,” says John Magee, head of Mayo Local Enterprise Office (LEO) and chair of the national network of LEOs. “They roll with the punches and quickly change tack when they need to.”
That resilience is born out of necessity, according to Small Firms Association (SFA) director David Broderick, “They have to be resilient. Sometimes they just don’t know when to say no and stop. That’s what got them through the last few years.”
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But that can disguise some quite serious problems. “It sounds nice, but what does it mean?” asks Isme chief executive Neil McDonnell. “It means nothing if the business is not a going concern. One of our members who owns a childcare facility took €4,000 in drawings from her business in 2023. Many small businesses are just one phone call from a creditor or the Revenue from closing.”
The past year was especially difficult for small businesses, says Broderick. “A lot of the State life supports were switched off at the same time as businesses faced a lot of cost increases. It was a perfect storm for many of them. More than 7,000 businesses didn’t even engage with Revenue on debt warehousing. More than a third of respondents to our last Cost of Doing Business survey said they would run out of liquidity in six months without additional funding.”
The knock-on effects of small business closures can be severe, McDonnell points out. “Their biggest creditors are other SMEs and that creates a domino effect. A local restaurant works with a whole ecosystem of local suppliers. They all suffer when it closes, as do their suppliers. We did a survey at the start of the pandemic and found that the average creditors’ ledger among our members was €76,000. When you multiply that amount of intercompany credit by 340,000 businesses, the scale is enormous.”
Support is clearly needed for a sector that, according to the SFA survey, has experienced an average increase in business costs of 16.6 per cent over the past year.
“There is no doubt that more support is needed for Ireland’s indigenous and SME sector,” says PwC Private partner Colm O’Callaghan. “Ireland needs to do more to help support indigenous private and SME businesses to become world leaders in their sectors. For example, supporting businesses to invest in their finance teams and their transformation journey will help them scale and internationalise faster.”
Supports should include providing tax incentives for digital transformation, supporting investment and helping with energy transition, he contends.
“Simplifying the tax code, particularly in areas of R&D tax credits and the completion of the yearly tax returns, can also reduce administrative burdens,” he adds. “It is crucial to focus on long-term, simple and clear policy measures aimed at supporting private and SME businesses. Overall, if the Government can have a clear, simple and stated policy to help private businesses flourish and grow, it will make a notable long-term contribution to Ireland’s SME sector and naturally hedge any dependency on the FDI sector.”
Magee points to the range of supports available to small businesses through the LEOs and Enterprise Ireland. “The best antidote to uncertainty is investment in competitiveness,” he says. “We are supporting companies in areas like sustainability, digitalisation and research and innovation, and helping local businesses to reduce costs and build resilience.”
Exporting is a key area of focus. “Even microenterprises are looking at global markets now,” says Magee. “Some years back, the OECD produced a report on Ireland’s competitiveness and the need to invest more in helping indigenous companies on the export journey. That’s the best way to avoid being overdependent on the domestic market. If we want to grow companies of scale, we have to look to international markets and the LEOs and Enterprise Ireland are doing a lot of work to help local companies think about and explore global markets.”
Broderick expresses some optimism in relation to the support environment for SMEs. “SFA has been lobbying hard for increased supports and we found at the end of the last government that there had been a change in the narrative and a renewed focus on SMEs,” he says. “That was very welcome. We also saw a number of positive developments before that including the enhanced SME test to establish how new legislation, regulations and government policies impact on small businesses.
“Proposals on PRSI rebates for small businesses made during the election campaign were also very welcome and we hope they will be acted upon. The Government needs to look at how the tax system can be used to stimulate growth by making changes to how investors come into a business and how staff can be rewarded with shares. These things wouldn’t cost the exchequer a lot.”
While the overall cost and trading environment may be challenging, there is still no shortage of people seeking to start up their own small businesses. “Almost 5,000 people will work with LEOs on start your own business programmes this year,” says Magee. “At a time of full employment, that number of people exploring their entrepreneurial abilities is very significant. That speaks to the health of the economy and the strong enterprise spirit we have here. The world is very small now; digitalisation means you can build a world class business from anywhere.”
