Irish SMEs struggling more with rising costs than international competitors, according to new study from Bibby Financial Services

  • 49% of Irish businesses cite rising costs as their greatest challenge to growth – compared to global average of 42%
  • 38% of Irish SMEs are struggling with cashflow, again above global average of 32%, and less than half expect growth in 2020
  • Rising costs, government regulation and cashflow are the top three issues facing small businesses

Small businesses around the world have described rising costs as their greatest challenge, and the problem is particularly acute in Ireland, where 49% of SMEs cited it as the major obstacle to business growth, compared to the global average of 42%. This is according to the latest Global Business Monitor, published by Bibby Financial Services, a leading provider of financial support and funding solutions to Irish SMEs and Euler Hermes, a global leader in trade credit insurance.

Irish SMEs are also more likely to be struggling with cashflow than their international competitors, with well over a third (38%) highlighting it as a significant issue, and less than half expecting a growth in sales in 2020.

The report also highlights the SME sector’s outlook when it comes to the impact of geo-political uncertainty. 72% of Irish businesses feel Brexit is the biggest threat to global economic growth, followed by the political situation in the US and the rise of protectionist economic policies worldwide.

Of those Irish SMEs trading internationally, the UK continues to represent best value and the greatest opportunity, followed by the US and Germany, Spain and France. But with Brexit on the horizon, almost two fifths (39%) of Irish SMEs say they are considering export markets beyond the UK.

However, 82% of businesses believe they face some form of challenge in trading internationally, most notably foreign exchange fluctuations, with 21% of SMEs citing this as a key factor.

The Global Business Monitor, produced by Bibby Financial Services, is an international survey of over 2,300 small and medium-sized enterprises across thirteen countries: Ireland, the UK, the US, Canada, Hong Kong, Singapore, Czech Republic, Poland, France, Belgium, Germany, Slovakia and the Netherlands.

Across these markets Irish SMEs are the fourth most optimistic about the performance of their domestic economy, with 57% of SMEs believing it to be good, down 10% since the last survey in 2017. The strong performance of the Irish economy, particularly as it nears full-employment, has also caused challenges for SMEs, with 50% describing it as ‘difficult’ or ‘very difficult’ to find qualified staff.

Over half (53%) of SMEs reported a growth in sales over the last year, and, looking ahead, and despite the increasing likelihood of a no-deal Brexit, 49% of SMEs expect sales to increase in the next twelve months. Of those expecting growth, 72% expect it to come from an increase in their number of new customers.

The report also shows that rising costs and overheads are the greatest challenge facing Irish SMEs, with the proportion of businesses that feel Government policy is favourable to them dropping by more than half – down from 18% in 2017 to just 9%.

Availability of finance remains a key concern, with only 21% of respondents considering it excellent or good, down from 33% in 2017, and an increase in the number of businesses rejected for external finance (19% in 2019, up from 10% in 2017).

When asked what area is most problematic for managing cashflow, 42% cited difficulties collecting payment from customers on time. In addition, 30% suffered a bad debt in the last year, and the average amount lost was €26,603.

While the European Central Bank has so far declined to raise interest rates, 50% of Irish businesses feel they would be negatively affected and it would hinder business growth.

Mark O’Rourke, Managing Director at Bibby Financial Services Ireland, said: “The strong performance of the Irish economy to date has meant that Irish SMEs continue to be largely optimistic about trading in post-Brexit domestic and international markets when compared to their international competitors.

“However there is a risk that underinvestment in preparation for Brexit will have a damaging effect on the sector and for Irish businesses, with few SMEs having the resources to put specific contingency plans in place. Our research also indicates that more SMEs are being rejected for external finance by traditional lenders.

“It’s therefore more important than ever that SMEs look beyond the major banks to consider a wider range of financing options, which are typically better suited to the needs of smaller businesses.”

David Postings, Global CEO of Bibby Financial Services, said: “It’s clear that SMEs around the world are becoming accustomed to global uncertainty and many are taking matters into their own hands, investing in capability and expansion.

“However, the impacts of geopolitical events such as the U.S. and China trade war, and Brexit, are already impacting costs significantly. This cost inflation is contagious due to the interconnected supply-chains in which small businesses operate. Ultimately, smaller businesses will need to pass these costs on to customers, but in the short term – at least – this situation has a hugely detrimental impact on cashflow levels.”

Ludovic Subran, Global Chief Economist, Euler Hermes, added: “As the risks of a recession rise and global GDP is expected to grow at its slowest pace since 2009 in 2020 (+2.4%), it is all the more important that SMEs have virtuous payment loops to avoid going bust. Global insolvencies are expected to rise by 8% in 2020 for the fourth consecutive year, and one in four bankruptcies for SMEs comes from a non-payment.”

About Bibby Financial Services Ireland

Bibby Financial Services Ireland is a leading provider of financial support and funding solutions to Irish SMEs. The company helps businesses to thrive and grow in domestic and international markets by providing tailored and flexible funding solutions for a range of scenarios including cashflow funding, new equipment purchase, growth and expansion, management buy-ins and buy-outs, refinancing, corporate restructuring and mergers and acquisitions.

Bibby Financial Services Ireland’s funding portfolio includes confidential invoice, trade and export finance, foreign exchange services, bad debt protection and specialist funding for a range of sectors. With a 95% client satisfaction rating, our clients have confidence that we support their business.

Bibby Financial Services Ireland is part of Bibby Financial Services Group, a leading global financial services partner operating in 40 locations across 14 countries. With 40 years’ experience, the business has a funding capability that exceeds £1 billion and an annual collective client turnover of £10.1 billion.

About Euler Hermes

Euler Hermes is the global leader in trade credit insurance and a recognised specialist in the areas of surety, collections, structured trade credit and political risk. Our proprietary intelligence network analyses daily changes in corporate solvency representing 92% of global GDP. We give companies the confidence to trade, and be paid. We compensate your company in the event of a bad debt, but more importantly, we help you avoid bad debt in the first place. Whenever we provide trade credit insurance or other finance solutions, our priority is predictive protection. But, when the unexpected arrives, our AA credit rating means we have the resources, backed by Allianz to provide compensation to maintain your business. Headquartered in Paris, Euler Hermes is present in 50+ countries with 5,800 employees. In 2018, our consolidated turnover was €2.7 billion and insured global business transactions represented €962 billion in exposure.

For more information, please visit: www.eulerhermes.com 

The Bibby Financial Services Global Business Monitor 2019 is available here:

https://www.bibbyfinancialservices.ie/about-us/news-and-insights/reports/2019/global-business-monitor

For more information about Bibby Financial Services Ireland, please visit: www.bibbyfinancialservices.ie

Find us on Linkedin @Bibby Ireland or follow us on Twitter @BibbyFinanceIE