Sentiment Index Reveals Challenging Environment for SMEs
22nd August 2022
Demands for salary increases, inflation pressures impacting on margins, and access to skills are the top challenges facing SME businesses in Ireland currently according to the inaugural BDO and Ibec SME Sentiment Index, which was carried out by surveying Senior Leadership from the Irish SME sector over the last few months.
The joint survey, conducted by BDO and Ibec, revealed that demands from employees for increased salaries is the biggest challenge facing their business today – 32% of Irish SMEs (*see footnote) surveyed cited this as their top concern. Compounding this issue, 29% of businesses stated that inflationary pressures impacting on company margins is the second biggest challenge facing their organisation. Access to suitable skills and affordable housing for staff were third and fourth at 18% and 4% respectively.
The BDO and Ibec 2022 SME Sentiment Index surveyed Irish SME organisations across three key categories: Staff Retainment and Recruitment; New Working Models (hybrid working); and Business Operations. The research was carried out independently by an in-depth survey of 167 Senior Management from the SME Sector (10-250 employees) in Ireland.
Speaking on the survey results, Michael Costello, Managing Partner of BDO in Ireland, said: “It’s clear from the results that the local and international business landscape for Irish SME’s is challenging and evolving fast. Some of those challenges, such as recruitment and retention of staff, have been concerning business leaders for some time. Others such as rising energy and commodity prices are new and need to be actively addressed.
It’s encouraging to hear that 60% of Irish SMEs remain positive that their revenue will increase over the next 12 months. There’s no doubt that there are serious challenges ahead, but businesses continue to grow, building on the positive outcomes of the pandemic – focusing on people’s wellbeing and work life balance, and leveraging the innovative technologies.”
Despite challenging market conditions, 60% of Irish SMEs have confidence in their business strategy and believe revenue will increase in the next 12 months, with 20% believing it will stay the same and 20% believing it will decrease.
While 45% of Irish SMEs surveyed invest in research and development (R&D), 43% don’t have any R&D plans currently or for the future. The R&D regime can be complex for SMEs and can act as a barrier to claiming the available tax credit. As R&D activities can result in a substantial reduction of a company’s Corporation Tax bill in respect of eligible R&D expenditure, or as a lump sum if the company has made a loss, the R&D tax credit is a valuable source of funding which should be considered by more Irish SMEs.
Business travel has also been a strategic business policy many Irish SMEs have re-evaluated in terms of cost to business and impact on the environment since the Covid-19 pandemic, as SMEs expect to travel half as much in 2022 as they did in 2019.
Over 10% of Irish SMEs do not have a cybersecurity plan in place for their company, with nearly one third of SMEs only introducing a cybersecurity plan since the Covid-19 pandemic.
Cybersecurity is a strategic business risk as cybercrime is rapidly becoming the most prevalent crime impacting organisations. It is a question of when and how, not if, it will impact an organisation, so it is imperative that businesses of all employee sizes have a robust and secure cybersecurity plan in place to protect business.
In the last 24 months, over 60% of SME businesses have increased their employee base and hired new employees. Larger SME’s, employing over 100 people, were the primary drivers of this growth, with over 70% of these organisations increasing employee headcount. Although most businesses reported increasing employee headcount, 83% found it a significant challenge to retain staff.
Increased activity across both employee arrivals and departures has led to a marked increase in the need to invest more time in recruiting talent with 80% of businesses now spending more time trying to recruit new staff today than prior to the Covid-19 pandemic. Seventy per cent of respondents also believe Covid-19 has impacted hiring employees from outside of Ireland, with one in four claiming it has changed this hiring process significantly.
New Working Models
The SME Sentiment Index also examined how SMEs in Ireland were coping with hybrid working models and how that was impacting their business.
On average, companies predict 54% of their organisation will work onsite full-time over the next 6 months, 34% will be hybrid and 12% will be off-site or working from home full time in 2022.
Over the next 3 years, 77% believe their business working model will be a hybrid of remote and onsite. Only 20% believe it will be fully onsite and just 5% think it will be fully remote.
The top benefits of a hybrid working model were the use of digital channels to communicate (32%), increased employee engagement (23%), increased productivity (21%) and reduced operational costs (23%). Eighty-nine per cent of organisations cited a good company culture to motivate employees as the key reason remote working is feasible. For staff, improved work life balance (46%) and not having to commute to work (46%) were the top benefits of a hybrid working model.
Not all businesses believe hybrid working models are beneficial to their company, however. Forty-five per cent of organisations surveyed believed that there are no specific benefits of employees working from home – citing staff engagement (37%), monitoring real time performance (26%), and data security (9%) as the three main challenges managing remote employees.
•SME businesses in Ireland expect over half of all employees will be back in the office full time in the next six months
•Over 80% of Irish SMEs, with employees ranging from 10 to 250, find retaining staff a significant challenge, with 8 out of 10 now spending more time on recruitment vs. 2019
•Salary increase demand is the number one concern for Irish management with inflation impacting margins
•Access to key skills a top concern for Irish management teams
•Despite challenging trading conditions, 60% of Irish SMEs believe their business revenue will increase in the next 12 months
•Nearly half of Irish SMEs don’t have any research and development plans currently or for the future
•Over 1 in 10 Irish SMEs do not have a cybersecurity plan in place for their company, with nearly one third of SMEs only introducing a cybersecurity plan since the Covid-19 pandemic
*Coyne Research undertook this sentiment survey independently, as commissioned by BDO and Ibec. The survey was completed between the 26th of May and the 29th of June. The online survey was carried out amongst a sample of 167 Business Leaders in SMEs with 10-250 employees. The survey sample consisted only of high-level decision makers, who have knowledge on financials and cash flow management, restructuring, overall company health along with much more.