The uncertainty surrounding the eventual form Brexit takes and the nature of any future relationship between the UK and EU has vexed Irish businesses for some time now.
Even with a revised withdrawal agreement, it will be some time before these concerns are alleviated. Despite the high-profile contribution of foreign direct investment to the Irish economy, the bedrock of business activity on this island has long been Ireland‘s SMEs.
Currently, our country is home to more than 250,000 businesses – 92pc have 10 employees or fewer – and they will find themselves particularly exposed as Brexit approaches.
The recent Global Business Monitor surveyed SMEs from 13 countries, and found Irish SMEs were struggling with rising costs and cashflow difficulties.
In addition, the fluctuation of sterling continues to cause problems for Irish SMEs involved in exporting or importing – driving up the prices of their goods and services, and inhibiting their ability to trade.
Recently, the Irish Government even took the step of issuing a loud warning to what it termed “vulnerable but viable” businesses to secure emergency loan approval should a no-deal Brexit come to pass. But while the €110m earmarked for these firms in Budget 2020 is to be welcomed, there are around 84,000 Irish companies currently trading with Britain, and they need to ensure they are prepared for any potential financial shocks.
So, considering this increasingly challenging business environment, what steps should Irish SMEs take now to ensure they are ready to deal with any challenges?
Secure cashflow is the lifeblood of any business, and SMEs should be working toward having working capital safety nets in place, in case any short-term liquidity needs arise. While State schemes such as the Brexit Loan Scheme and Microfinance Ireland exist to fulfil this need, businesses are being urged to apply now as applications can take some weeks to process.
Doing so will be crucial, especially as 38pc of SMEs report they are struggling with cashflow, according to our Global Business Monitor.
SMEs also can‘t rely on the mainstream funders coming to their rescue at the last minute. The Central Bank‘s SME Market Report this year shows rejection rates are high. And, given that the process of securing cashflow via the main lenders can be slow, SMEs need to cast the net wider.
Alternative lending solutions can deliver real value and a range of benefits above and beyond access to finance, including in-depth specialist market knowledge. Invoice finance, for example, allows businesses to raise cash against unpaid invoices, providing an immediate and ongoing supply of cash that grows with a firm. Up to 90pc of the value of an invoice can be paid within 24 hours – allowing firms to pay staff, suppliers, or take on new orders.
Ireland has around 3,000 wholesale and retail firms exporting goods to the UK. The vast majority employ fewer than 50 people. With tighter margins, these firms are already more exposed to currency volatility. Fluctuation and volatility are facts of life no matter the currency, but the twists and turns of the UK‘s Brexit negotiations have made it a particularly bumpy journey for those importing from or exporting to Britain. Again, there are a range of financial products that can help SMEs overcome these challenges.
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Trade finance allows businesses to buy, receive and sell goods before needing to pay for them. Aside from quick access to funding, it has the benefit of paying suppliers on the same day goods are shipped, and in the currency of choice.
Foreign exchange services can similarly offer excellent value for money and flexibility, allowing SMEs to take advantage of spot conversions for immediate use, or forward contracts.
Irish SMEs would do well to evaluate their reliance on the UK market, and the possible advantages of growing elsewhere. However, trading further afield brings with it its own set of challenges – including the need to identify and build relationships with new customers and suppliers. For firms that have customers overseas who have extended payment terms, or who have issues collecting payment from abroad, export finance can prove valuable.
This releases working capital that might otherwise be tied up in invoices for long periods, and can help SMEs more easily gain a foothold overseas.
