SFA Vision - Next Generation Business.pdf

Next Generation BusinessA vision for small firms in Ireland

Small businesses, defined as those with less than 50 employees, make up over 98% of businesses in Ireland.

Small businesses exist in every single village, town and city in Ireland, and operate in all sectors. But what makes small business tick? Why do people establish and grow their own businesses? And what can be done to accelerate the growth of small businesses in Ireland in terms of their number, profit and the jobs created?

The vision of the Small Firms Association is:“ Ireland – the most vibrant small business community in the world – supporting entrepreneurship, valuing small business and rewarding risk takers.”

We believe that the government, state agencies, educators, individual businesses (both large and small), representative organisations and the general public all have a role to play in making this a reality. Huge strides could be made in the space of 5-10 years – creating more jobs, adding value to the economy, contributing to the Exchequer, injecting vibrancy into towns and villages and creating a happier population.

Initial successes have the potential to create a virtuous circle. If we establish an environment that encourages the best raw entrepreneurial talent from at home and abroad to establish their businesses, access the ecosystem and make a commitment to wealth creation here in Ireland, then a critical mass could be created to justify the public and capital expenditure required. This would create a more compelling argument for foreign investors to establish bases in Ireland and create access to a wider funding base than currently exists.

This document sets out a roadmap for how to catapult the Irish small business community to these new heights. Economic analysis, a social narrative and over 60 concrete recommendations combine to trace the current small business landscape and project into the future.

I encourage you to support us in achieving this vision. Join the conversation by using #smallbizvision on Twitter @SFA_Irl and LinkedIn www.linkedin.com/ company/small-firms-association

Patricia Callan SFA Director

1A vision for small business in Ireland

Foreword

The small business landscape – starting point, challenges, opportunities

The economic contribution of small firmsThe economic importance of small firms cannot be overstated. Nowhere are small firms more important than in the labour market. Firms with fewer than 50 employees account for 44% of employees and 49% of the total persons employed in Ireland’s private sector. They also make up over 98% of the enterprise base of the country.

Young and new firms in particular, account for the majority of employment growth. The most recent data shows that between 2008 and 2012 while the total number of private sector employees fell by 264,000, companies which were less than five years of age created 106,000 net new jobs; offsetting 40% of the job losses in the broader economy. Indeed young Irish firms are the second fastest growing in Europe when it comes to employment, with a young Irish firm on average growing employment by 150% in its first five years.

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Figure 1: % of employment by firm size

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Figure 2: % growth rate of new firms over first 5 years

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Figure 3: % of workers employed in a small firm by county

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The spread of small businesses and the sectors in which they play a role are central in the domestic economy. Small companies are the dominant employers in the domestic facing sectors such as construction, tourism and retail which are both labour intensive and crucial for regional employment. Small firms account for around 45% of employment across counties but account for more than that in all but two counties (Sligo and Dublin) and over half of employment in 17 counties.


When it comes to the economy as a whole Central Bank research shows that small firms account for 31.6% of Gross Value Added (GVA) – or in other words make up a total of one third of the total value of the Irish economy. Within this, Irish-owned firms make up one quarter of the Irish economy.

Table 1: Contribution to Gross Value Added

Irish Non-Exporter

Irish Exporter

Foreign Non-

Exporter

Foreign Exporter

Total

Small firms 21.80% 3.50% 5.00% 1.30% 31.60%

Medium firms 6.3% 4% 2.7% 7.4% 20.5%

Large firms 71.9% 92.5% 92.3% 91.3% 47.9%

Source: Lawless, McCann & McIndoe Calder, Central Bank, 2012

Similarly, small firms account for almost 35% of business investment in the economy, with Irish owned small firms accounting for 22.6%.

Table 2: Contribution to investment

Irish Non-Exporter

Irish Exporter

Foreign Non-

Exporter

Foreign Exporter

Total

Small firms 20.1% 2.5% 11.7% 0.6% 34.9%

Medium firms 8.4% 3.5% 2.4% 3.2% 17.4%

Large firms 10.7% 18.0% 6.6% 12.3% 47.6%


The challenge As we have shown, the economic contribution of small firms is substantial. Small firms in particular are the major employers in the Irish labour market giving employment to almost one in two jobs in the private sector. They account for one third of value added in the economy and a similar proportion of business investment. This often does not get sufficient recognition given that it is based on thousands of smaller investments and jobs created every year rather than large once-offs but it is no less important economically and socially.

n Survival This is not to say the sector is without its challenges, however. Irish owned firms and Irish small firms in particular are part of a comparatively weak indigenous enterprise base. Ireland has some of the fastest growing young firms in Europe but the rate of new business formation in Ireland is low (6.8% or 12,600 companies in 2012) compared to other countries, particularly the UK. This in part may be a factor of the slow economy at the time this data was recorded (2012) but there are also serious institutional issues preventing Irish people from going into business for themselves.


“ Small firms are the major employers in the Irish labour market, providing one in two jobs in the private sector.”


When those firms are formed, Ireland is a hard place to grow a business. Irish small firms face a number of challenges to their growth. These include high legacy debts and costs, a small domestic market, an overreliance on bank funding, barriers to innovation and challenges accessing and competing for the right skills to help them grow.

Figures for recent years show that new enterprises have had an average five year survival rate of just 48.4%; less than one in two new companies formed in any given year are still trading half a decade after they form. This is before they begin to do any of the things the economy needs new firms to do such as growing their output, taking on more employees or selling into new markets.

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Figure 4: Birth-rate of new firms (New firms, % of existing firms)


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Figure 5: Enterprise survival and employment share after 5 years, %



n 5 year enterprise survival rate %

n Employment share of firms under 5 years %

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Figure 6: % of firms with 10-49 employees innovating


n Exporting Despite Ireland being a small very open trading economy, when it comes to exports the record of small firms (both indigenous and foreign) is poor. Small firms are responsible for only 6.4% of exports, whereas they account for over 98% of all companies. This leaves small businesses far more open to the fluctuations of the domestic economy. It also means slower growth for small firms given that export sales are a key driver of growth.

Table 3: Contribution to exports

Irish Foreign Total

Small firms 3.1% 3.3% 6.4%

Medium firms 4.8% 14.7% 19.6%

Large firms 6.7% 67.3% 74.0%

Total 14.6% 85.4% 100.0%


n Innovation Innovation is widely recognised as a key ingredient of economic and business success across all sectors of the economy. Irish small firms are less likely to innovate than the best of their European counterparts. Eurostat’s Community Innovation Survey shows that only 37.4% of small firms in Ireland innovate – that is introduce a new product or process – annually. This is slightly higher than the EU28 average but well off the top of the rankings.


There is, however, a bigger issue at hand with non-Irish small firms almost 13 percentage points more likely to be innovating than their domestic counterparts. A large part of this is down to sectors in which they are operating but evidence (ESRI, 2010) suggests that when other factors are taken into consideration, foreign owned and

internationalised domestic firms are far more likely to invest in innovation and were more likely to translate this investment into tangible gains than domestic facing indigenous Irish firms. Small firms are also far less likely to take up supports for R&D – one of the key ingredients to innovation.

Smaller firms and start-ups in particular face funding constraints for R&D investments. Despite this, the R&D tax credit’s take-up among smaller companies has been weak. Only 1% of companies with turnover less than €1 million use the tax credit each year, compared with 12.5% above that mark.

n Management skills Good management skills are key components of business growth in any economy. Research has shown internationally that improved management skills can improve sales growth, market share growth and particularly lead to higher productivity.

A 2010 study of Irish firms for the IMI by researchers from the London School of Economics had some disconcerting results in this context. They found that manufacturing firms in Ireland had poor management practices, lagging considerably behind their counterparts in the US and UK. They also found that Ireland had a long tail of poorly performing firms which was not seen in other countries, which was covered over by some very high scoring multinationals. Irish domestic firms in general were 20% behind multinationals in terms of management practices.

Among 10,000 firms in manufacturing and retail across 21 countries, Irish domestic firms and particularly small firms suffered the biggest challenge with management. Irish indigenous firms were third bottom among developed countries, higher only than Portugal and Greece.

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Figure 7: Management scores (0-5) in domestic and multinational companies

Source: Bloom, Genakos, Sadun, and Van Reenen (2009).


n Foreign multi-nationals

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The opportunityn Employment

As we have shown Irish small firms face some major challenges yet they remain a major driver of economic growth and particularly employment. Small firms account for 45% of employees (49% of total persons employed) in the Irish private sector. Given employment (under current forecasts: DOF, Budget 2016) is expected to grow by 240,000 between 2016 and 2021, with the majority in the private sector, it is reasonable to assume that the Irish small firm community can create in the region of 100,000 net new jobs over that period – or 16,666 per year – if they continue to account for the same proportion of new jobs as existing jobs. At current rates of firm formation, new firms alone could create in the region of 15,000 new jobs annually over the same period.

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Figure 8: Total employment growth in new firms baseline and counterfactual

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This is a simple baseline, however. Changes in policy and conditions which improve the ability of small firms to grow and thrive could add to this total and improve economic growth as a whole.

Irish start-up rates are amongst the lowest in Europe. An increase in start-up rates to European norms would see employment grow by a further 2,500 annually; increasing new firm birth rates to UK levels could increase employment by 8,000 annually assuming a continuation of current trends in employment growth levels of new enterprises.

Our most recent figures (2007-2012) show that only 48% of enterprises survived over five years from their formation. Those firms that were able to survive had an average 150% increase in employment over five years, with the total number of jobs in those firms five years old (including those that did not survive) 121% higher than in their start year. Improving small firm (5y) survival rates to 60% from its current level of 48.4% could add in the region of 5,000 jobs to the economy annually through greater job retention.

All in all improving small firms’ start-up and survival rates over their first five years could add in the region of 7,500 jobs annually to the economy over and above what we would otherwise expect from the small business community, bringing the total employment growth to 195,000 over the next five years (2016-2021) or 32,500 per annum.


n Employment growth in new firms

n Employment growth in new firms counterfactual

n Productivity, innovation and economic growth Irish indigenous small firms are well below ‘best in class’ when it comes to management, innovation and exporting – three of the main drivers of business growth and productivity. Improving management practices, helping firms innovate or export earlier will increase the productivity and growth of Irish small firms.

Taking the role of small firms in the whole economy, increasing productivity by 5% in indigenous firms could add 1.5% to GDP permanently; improving productivity of Irish indigenous firms to the level of their UK counterparts could add 4.9% permanently.

Furthermore, Irish economy-wide R&D spending is equivalent to around 1.6% of GDP; this is compared with an EU average of 2.1% and leading EU countries spending 3.3%. In order to realise our goal of 2.5% GDP spend on R&D by 2020 and a growing, exporting, indigenous enterprise base, we need to make sure more small companies are innovating sooner.

The R&D tax credit has been a successful model in encouraging Irish companies to invest in R&D and create value in the economy. In line with international research, an Ibec study showed that for every €1 given in tax credit to participating firms they spend in the region of an additional €1.25 on R&D over and above what they would otherwise have spent. Studies in the UK suggest this additional spend could rise as far as €3.60 in the long-run.

In 2013 30% of the value of the €421 million credit went to small companies, or €126 million. Increasing the value of take-up of the R&D tax credit among small firms by 50% (€63 million) could add as much as €225 million to R&D spending across the economy over the long-run.

Next stepsIn pursuit of the ambitions laid out above, the SFA has mapped out the changes that are required under three themes:

1. Fostering a strong, inclusive culture and positive recognition for small businesses

2. Creating a highly educated and skilled population with the ethos and tools to succeed

3. Building a dynamic and supportive business environment for small businesses

Each of these areas will be explored in depth and recommendations made.


Theme 1

Fostering a strong, inclusive culture with positive recognition for small businessCulture, parameters and descriptorsAn Ireland that is ‘open for business’ must encompass enterprises of all sizes, sectors and levels of ambition. In a thriving business community, diversity is essential and a vibrant small business community, including lone sole traders up to high-tech exporting companies looking to scale, is a crucial dimension. Companies at different life stages and of different sizes are essential to the existence of a symbiotic ecosystem that will benefit all of business and society.

Current government policy focuses on the number of start-ups and particularly backs ‘winners’ who have the potential for scaling and internationalising their business. Yet half of private sector employment is in the 180,000 small businesses that trade mainly in the domestic economy and will remain small but viable. At their current cumulative scale, these businesses are significant contributors to the Irish economy and to the creation and maintenance of jobs throughout the country, and must be recognised and lauded.

The founders of these businesses describe themselves as ‘small business owners’, rather than ‘entrepreneurs’. They take a calculated risk to set up a business and, once they have built a profitable company of a size that they can maintain, many don’t have ambitions to grow further.

Ultimately, all share a belief that it is very rewarding to work for yourself and try to develop something new. All businesses are motivated by the ability to make a profit. They should be enabled to pursue this according to their own chosen growth trajectory and should not feel alienated by government policy or public perception that they are not in the ‘right’ type of business, in the ‘right’ sector, with the ‘right’ ambitions. Government policy should refocus on building the capacity that the private sector cannot yet attain by itself and on providing all companies with the tools to manage risk appropriately. Culture can change. Government policy and other factors have the potential to accelerate and guide this change.


Recommendations1. Change the language around entrepreneurship to that of business owners,

exploiting business opportunities with realistic risk assessment. By making business setup less of a ‘rags to riches’ dreamworks, more people will be encouraged to make the rational decision to establish.

2. Accept that most business owners do not conform to the stereotypical image of an entrepreneur. They may not have the drive and ambition to scale their business, but they should be supported in taking the risk decision to establish in the first place and create good quality employment in the process. It shouldn’t all be about backing a handful of winners.

3. Successful business owners should act as role-models to others, through mentoring, opening doors to their network and participating as non-executive directors on the boards of small companies.

4. Small business owners should actively engage in their communities through local schools and voluntary groups to share their experiences and insights.

5. Politicians, government officials and those in advisory professions should speak responsibly and respectfully about small business and small business owners, acknowledging the economic and social contribution that they make as well as the challenges they face. Casting aspersions on business owners or profit-making more generally damages the public perception of our country’s small businesses.

6. The media should give more coverage to positive small business stories and celebrate Irish successes.

7. The Government should organise press conferences and photocalls for job creation announcements in small companies, grouping a number of companies together to highlight the cumulative effect.

8. Entrepreneurship should be part of popular culture – TV shows and awards programmes mainstream and promote positive messages about engaging in business.

9. Steps are needed to encourage small business owners to believe in their ability to scale businesses and internationalise successfully (in particular beyond the UK). Concrete initiatives would include more peer-to-peer mentoring on internationalisation, greater investment in management skills and a more practical use of the Irish embassy network to generate local business leads for companies including non-Enterprise Ireland clients.

Fostering a strong, inclusive culture with positive recognition for small businesscontinued


Recommendations1. Acknowledge the wide variety of reasons that people set up in business for

themselves and the different types of businesses they will create. Provide suitable supports to assist them in establishing and getting on their feet through government programmes, mentoring from like-minded peers, more formalised supports for spin-outs from MNCs and a better environment and structure to create and facilitate linkages with suitable non-executive directors.

2. Profit must be explicitly regarded as a positive in our society and by government. This perception is essential for businesses to establish, thrive and grow employment. Without it, businesses will not be created or will fail and go under. There must be an adequate incentive and reward for risk, not just in maintaining our 12.5% corporation tax rate, which is essential, but in creating an appropriate capital gains tax system equivalent to the UK model of a 10% entrepreneur rate up to a limit of €14mn.

3. Equalise tax treatment between self-employed/proprietary directors and the PAYE workers and provide a social welfare safety net in the event of business failure. Continue the Back to Work Enterprise Allowance, the Enterprise Support Grant and new two-year income tax credit for the long-term unemployed. These are best-in-class internationally as supports to encourage long-term unemployed people to become self-employed and should be highlighted more.

Setting up a businessA culture supportive of people setting up their own business is vitally important to persuading more people to do so. The cultural environment towards entrepreneurship has certainly made great steps forward in recent decades but must continue to improve. This requires a gradual shift in attitudes, psychology and subliminal messaging, potentially across generations. Good role models have a vital part to play.

The broad experience in Ireland is still that people are educated and steered by family and peers towards stable careers as employees in larger businesses. The sense that setting up a business is an unconventional career decision, along with the begrudgery experienced by many successful small business owners, must be consigned to the past.

Consultations with SFA members indicate a variety of reasons for setting up a business. Many describe identifying an opportunity with good earning potential as the reason for establishing their business, predominantly in areas where they had already had experience of doing similar work as an employee. For others, the decision was more push than pull; facing limited opportunities for employment, they created jobs for themselves based on their existing skillset or interests/hobbies, and additional job creation flowed through growing market opportunities. The main reason for some people choosing to set up in business for themselves was the experience of having a poor manager and thus of not wanting to work for others within a corporate structure, and instead being able to lead and manage in their own style. Many believe that it is important to learn lessons from working in a variety of other businesses, rather than setting up in business straight from school/college.

Language plays an important role in terms of both reflecting and influencing culture. ‘Start-up’ is an interesting case in point, as it has come to be connected almost exclusively to the tech sector and apply even to tech companies that have been operating for five or ten years. In recent years, the government has introduced a range of measures to support new businesses and has created positive rhetoric around start-ups, but particular efforts are needed to ensure that new businesses outside the tech sector feel included in these initiatives.


Serial and second-chance entrepreneurshipCentral to the question of culture is an acceptance of failure and the existence of an environment conducive to starting again. In many countries, particularly the US, there is a belief that learning from failure is a key attribute of the entrepreneur and that failed entrepreneurs have a high chance of success in subsequent ventures.

The reductions of the bankruptcy period in Ireland from twelve years to three years and, most recently, to one year, represent significant steps forward. Still, many owner-managers feel that there is no real appreciation that it is hard to succeed and doing so involves a huge personal commitment. There is a lack of understanding that businesses can fail through no wrongdoing or lack of dedication. Failure is perceived to be absolute and carries social stigma. It is very difficult to exit business problems and to start again.

Recommendations1. The Government should establish a working group specifically to make

proposals on supporting serial and second chance entrepreneurship.

2. Establish an early-warning system to identify and support troubled businesses before they fail, as exists in Denmark and other countries.

3. Make specific mentoring supports, active learning networks and streams of finance available to people looking to set up again following a failed venture.

4. The media must ensure to report and analyse business failure in a constructive light. Where businesses fail with no illegality, this should be reported on in a respectful and neutral fashion rather than almost a cause celebre.


Fostering a strong, inclusive culture with positive recognition for small businesscontinued

“ The sense that setting up a business is an unconventional career decision, along with the begrudgery experienced by many successful small business owners, must be consigned to the past.”

RecommendationsPrimary and secondary education:

1. Introduce the concept of entrepreneurship in primary schools through project-based work delivered by outside experts. This already exists in an ad hoc manner in some schools but should be mainstreamed.

2. Foster collaboration between companies and schools in their local communities. Companies could donate products to schools to take apart and learn how to put back together, mentor student enterprises/entrepreneurs and allow their experiences to be used in real small business case studies.

3. Continue and build out successful Transition Year programmes including work experience, model company programmes and student entrepreneur of the year awards.

4. Encourage children to run fundraising events rather than parents, allowing them to learn to navigate the mechanics of running a bake sale for example.

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Theme 2

Creating a highly educated and skilled population with the ethos and tools to succeed EducationThere is no doubt that entrepreneurial skills need to be enhanced in the Irish education system. The data from the Global Entrepreneurship Monitor shows that Ireland lags behind the EU average in terms of primary and secondary education. Ireland should aim to surpass the EU average on these metrics and compete with the most innovative, entrepreneurial nations in the world.

The issue is not necessarily to have ‘entrepreneurship’ or ‘business studies’ classes taken by more students, but rather to introduce key skills such as resilience, critical thinking, risk assessment/intelligent risk taking and collaboration across the curriculum from primary to higher education. These skills are crucial for budding entrepreneurs but are also highly valuable for those looking for employment after leaving education.

Creating a highly educated and skilled population with the ethos and tools to succeedcontinued

Management capacityInternational studies show that 50% of small businesses fail in the first five years of existence, and the small business failure could be reduced by half if we invested in more in management capacity. Only 6.2% of employed persons in Ireland participate in lifelong learning, compared with a European average of 11.4%. Management training is important at all stages of the business lifecycle from start-up to growth (including internationalisation) to sale/succession planning. Time, cost and location of appropriate courses are the biggest barriers for small business in upskilling.

There is also a clear need to differentiate roles and responsibilities, particularly within a growing business.

The Small Firms Association is the centre of excellence for learning and innovation amongst small businesses in Ireland. The SFA, in partnership with the Ibec Training Unit, provides a range of short duration targeted training courses to owner-managers and their employees, tailored for small business.

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5. Create a national structure for partnership between business organisations, such as the SFA, and teachers’ organisations to share insights and perspectives.

6. Promote entrepreneurship as a viable and attractive career choice.

Higher/further education:

7. Integrate entrepreneurial skills into a range of higher education courses, including engineering, science, journalism and ICT. Teach students how to set up and grow a business.

8. Deliver self-employment training sessions to adult learners, unemployed people and those outside of the workforce, including by using games.

9. Educate people to recognise what they don’t know and identify how they can fill the gaps by upskilling or collaboration.


Recommendations1. Small companies need to realise that building a professional management

team is important, and the right mix of skills (creative, finance, sales, etc.) are needed to make a successful business. More time should be invested in hiring the right people and upskilling others.

2. Many people who set up a business have an idea and want to commercialise it but they are not naturally skilled in running a business. There is currently no structured way of matching ‘ideas people’ with professional management, appropriate mentors and non- executive directors.

3. The outstanding recommendations of the Management Development Council Report should be implemented; primarily:

n Increase the level of funding to ManagementWorks to the level recommended in the Report, i.e. €10-12 million, in the short-term, with this figure growing over time

n Intensify focus on the ‘long tail’ of badly managed firms, as this has the greatest potential to increase Gross Value Added.

4. Encourage upskilling in the area of finance through a government-issued Finance Voucher scheme. In addition, Skillnets ManagementWorks subsidised training programmes should be greatly extended.

5. Promote awareness of the training and capacity-building programmes that are available to small businesses, through the SFA, Skillnets ManagementWorks and others.


Recommendations1. Professional advisers such as accountants and solicitors should improve their

service offering to start-ups, particularly in relation to cost during early stages. Companies should be made aware that solicitors legally have to advise their fees up front (in accordance with Section 68 of the Solicitors Acts).

2. Government bodies and larger enterprises should be more open to innovative new start-ups as quite often smaller companies are excluded from quoting for certain jobs due to their limited size and lack of financial history. SFA and Ibec plan to roll out a ‘Marketplace’ event in 2016 to help small/new companies understand the procurement processes of government agencies and large companies to allow organisations of all sizes to do business together.

3. The government should allocate a clear communications budget for every new support scheme that is developed. The ‘Supporting SMEs’ online tool is a good one-stop shop for information and should be maintained but awareness of it needs to substantially increase.

4. Certain Local Enterprise Offices (LEOs) receive very good feedback for helpful advice, affordable training and supports. This service level needs to be standardised across all counties and general awareness levels improved. The process of moving through agencies, e.g. from LEO to EI, needs to be seamless from the small business’s perspective.

5. Government should enhance its targeting of supports for underrepresented groups such as women, ethnic and young entrepreneurs and develop supportive peer networks across established and early-stage businesses along these lines. In particular this would assist in checking potential customers/partners professional credentials in the informal way that more traditional entrepreneurs can.

Theme 3

Building a dynamic and supportive business environment for small businesses

Practicalities of setting up a businessIreland scores well in international charts on regulatory burden for the ease of setting up a business. Aspiring owner-managers’ experiences with using professional advisers, however, are more mixed. It is critically important that, prior to and during the set-up phase, each person or company does their own due diligence and creates appropriate legal structures. Information remains disparate and there is still relatively low awareness of the variety of government supports available. Networking is critical to business success but can act as a barrier to underrepresented groups such as women, ethnic and young entrepreneurs who often don’t have ready-made networks.


Business environmentBusinesses create jobs, generate profit and contribute to the Irish economy. In order to do this they need to operate in a dynamic business environment. Many small businesses believe that government’s main role should be in staying out of their way and allowing them to get on with running their businesses in an efficient fashion. If government creates an environment that is conducive to enterprise, then small business will flourish.

In this context, the focus of government enterprise policy should shift from micro-level support (picking winners and supporting specific companies through its agencies) to a macro-level support (building up the infrastructure, institutions and ecosystem and creating the environment for all companies to succeed, grow and internationalise). The former has been largely successful to date but the latter is the approach that will enable the next phase of Ireland’s economic development.

Recommendations1. Reduce the burden of complying with excessive regulation, in particular

by streamlining administrative processes to minimise burdens – e-government has transformative potential in this regard.

2. The government should track and monitor business costs and curb those on which it has influence and control, e.g. education, transport, energy, labour (minimum wage and JLC rates). All businesses should keep a strong focus on cost competitiveness.

3. Ireland needs full regional coverage of high speed broadband in the short-term. Government and private sector providers, including wireless broadband providers, must work together to deliver the National Broadband Plan without any further delays.

4. Commercial rents (upward only rent reviews) and commercial rates systems need to be fundamentally reformed. Planning rules should be reviewed to ensure there is sufficient commercial and residential property to meet the needs of our growing economy.

5. Attracting talent, investing in people and retaining staff are tricky as a small business. Recruitment agencies are often too expensive and small businesses don’t have experience in recruiting. The Intreo service should be further professionalised and resourced to provide a good free alternative service for small firm recruitment needs.

6. Government should focus on enticing the best entrepreneurial talent internationally to locate in Ireland and supporting high-skilled Irish emigrants to return home to start new ventures.

7. Public procurement policy needs a complete rethink to ensure that small businesses have access to contracts. Large scale framework agreements focused on price mean that small businesses simply can’t compete. Contracts should be awarded on the basis of a more holistic assessment of the economic impact including job creation and retention.

8. Support small businesses to cooperate with organisations that are otherwise their competitors, for example ‘coopetition’ on tenders. Clear guidance from the CCCP is essential in this regard.

9. Develop new strategies to ensure regional balance and development of sectoral opportunities, e.g. on tourism.



Recommendations1. Many types of start-up businesses do not need initial large scale

finance. The process of opening basic business banking facilities can be cumbersome, however, and needs to be streamlined.

2. Managing cashflow is the essential ingredient in all business finance. Owner-managers should be trained in this essential skill. All businesses should write clear payment terms into their contracts and the government must enhance its communication of the Prompt Payment Code and enshrine it as an essential stamp for doing business in Ireland.

Non-equity finance

3. Mainstream banks need to reinvest in relationship managers who understand small business and can assess the venture and the individual behind it in a more personal way rather than lending solely through security and personal guarantees or automated online assessment. At the very least, there needs to be good assessments based on cashflow, but we believe banks should be better at all-round risk assessment on ventures.



FinanceThe availability and affordability of appropriate finance is the perennial problem at each stage of a business’s lifecycle. Competition in the banking sector must be increased and interest rates brought down so that Irish businesses do not continue to pay more for credit than their European counterparts. In Ireland and the EU generally, there is a traditional over-reliance on mainstream bank debt finance, rather than equity investment – the opposite of the situation in the US, for example. The financial crisis demonstrated how risky this strategy is and the recession period saw the introduction of a number of helpful government policies to improve access to debt finance beyond the mainstream banks. These included the establishment of Microfinance Ireland (MFI), the Credit Loan Guarantee Scheme, the Strategic Banking Corporation of Ireland (SBCI) and the ISIF funds. Dozens of innovative providers of alternative forms of finance also established a small presence in the market during this time. There has been very little progress, however, on initiatives to tackle the equity gap (30%, as banks will now provide a maximum of 70% financing).


10. The government should capacity build private sector institutions. Many of the programmes run by Enterprise Ireland and the Local Enterprise Offices could be administered through private sector institutions like representative bodies or specific business networks. Devolving programme and funding delivery to private sector institutions will deliver the same programmes but with a private sector ethos.

11. Build out the capacity of community enterprise centres. The explosion in the number of these centres, which provide enterprise and incubation space and hands-on supports for start-up and early-stage enterprises, has provided highly-effective support for a significant number of small companies around the country.

Building a dynamic and supportive business environment for small businessescontinued


“ The availability and affordability of appropriate finance is the perennial problem at each stage of a business’s lifecycle. ”




The previous role of the bank manager as a business advisor, supporter and connector during the tough early days of a business has been identified by many long-standing owner-managers as having been essential to their very survival. This broader role is essential to our small business ecosystem.

4. The government’s policy of giving large multinational companies extensive subsidies for setting up in Ireland causes some resentment amongst small businesses that do not get similar supports. Its appropriateness as a policy strategy should be re-evaluated for our new globalised world.

5. Providers of innovative alternative forms of finance should be strongly supported and promoted by government (e.g. invoice finance, asset finance, crowdfunding, peer-to-peer funding, etc.), in particular through appropriate financial regulation and potentially government co-funding, which would add an essential layer of confidence for individual investors.

Equity finance

6. Government policy around small scale grants, e.g. feasibility, jobs, etc. needs to be re-evaluated. The policy of ‘backing winners’ is fraught with difficulties, as grant funding is likely to go to businesses that would have been successful without it. This funding could be used more efficiently as a large-scale revolving loan fund, or as a base fund for supporting more extensive equity investment in Ireland through angels and VCs.

7. Culturally in Ireland, most small business owners are averse to giving equity to investors and thus curtail their growth to funding from their own cashflow with bank lending. Businesses now need to scale faster than ever to be successful so this has become a serious barrier. This issue merits the establishment of a government-led working group to specifically examine how to improve access to equity investment in Ireland. Our initial recommendations include substantially improving the EIIS Scheme to make it easy for family and friends to invest in a business in the form of redeemable preference shares. Enhancing angel and VC structures is also critical. Education and the facilitation of easier access to various forms of equity is critical – people must believe that owning 70% of something big is better than owning 100% of something small.

8. Crowdfunding is being suggested as a solution for early-stage ventures. Whereas government may have no direct role in this funding line, it does have a role in establishing a legal basis and platforms under which such funding can operate. This would help to protect both the investor and the small business. By creating a secure environment for investors, the government would also create a competitive advantage for Ireland to attract crowdfunding.

Recommendations1. The government should set out a roadmap outlining its plans and timelines

to implement the many excellent ideas contained in the 42 submissions it received in response to its tax and entrepreneurship consultation in summer 2015.

2. Tax equalisation between the self-employed/proprietary directors and their employees must be delivered fully by 2018, inclusive of an earned income tax credit (EITC) equivalent to the PAYE tax credit and the abolition of the USC surcharge.

3. The social welfare system should undergo a complete root and branch review during the term of the new Government to ensure it is equitable, supports people to take up employment or become self-employed and provides an equal safety net for business owners as for their employees.

4. Our taxation system must remain competitive internationally and in particular relative to our nearest neighbour, the UK. Our corporation tax rate must remain at 12.5% and our CGT entrepreneur rate must match the UK version of 10% up to €14mn. CGT for all other transactions should be reduced to a 20% flat rate.

5. Funding of pensions should be supported and there should be a level playing field across private and public sector. The funding rules should allow owner-managers to invest to achieve similar outcomes to public sector pensions over a shorter period of time, as most owner-managers only start a pension at the age of 50. Reinvestment in their business is their priority until then.

6. The marginal tax rate for all workers needs to fall to the OECD average.

7. Business-owners in Ireland are among the most compliant in the world. It is important that public perceptions, as well as those of government and agency officials, are updated to match this reality.

TaxationThe tax system has a vital role to play in supporting small business development at each stage of the life cycle of the business. It must constantly evolve to ensure that Ireland remains an attractive place to establish and scale a business.

Budget 2016 contained some positive changes from a small business perspective. In particular, the introduction of a small income tax credit for the self-employed was recognition of the discrimination that this group faces in the tax system, as the SFA had long claimed. The changes to the CGT entrepreneurial relief also represented a step in the right direction.

Generally there are very high satisfaction levels at dealing with the Revenue Commissioners, in particular with regard to the relatively low compliance burden and general efficiency.




Recommendations1. Create new mechanisms to match businesses and research institutes.

2. Support continuous R&D for companies through a manageable R&D tax credit. This should be promoted to all companies, not just high-tech or exporting companies.

3. Reenergise the incubation unit environment. Incubators should be standalone, privately-run organisations, embedded within the third-level system but with an independent ethos. A key role for incubators should be to build a list of potential entrepreneurs, business managers and self-starters who could be a best match CEO to work with the academic originators of a product on its commercialisation.

4. Third-level institutions need to be encouraged to change their practice with regard to commercial intellectual property. At present, when a commercial innovation is derived the primary route of commercialisation is to licence to larger multinationals. In this case the opportunity to spin-out a commercial entrepreneurial venture is stymied.

5. Create further opportunities for spin-in (entrepreneurs or innovators returning to develop their ventures within the environment of the third-level sector), which has been relatively successful to date.

Research and development Innovation is in many ways a function of primary research. One key role of government is to increase over time the quantum of primary research being conducted. This is a long-term investment. The private sector normally cannot justify this research in the way it can justify applied research but if Ireland is to create an innovative economy then increased investment in primary research is essential. An environment needs to be created where companies can tap into and exploit the excellent research and development being carried out in Irish higher education institutes.

ConclusionAchieving this vision is a hugely ambitious project, but one that the SFA is ready to lead. Even with widespread buy-in, progress will take time, which is all the more reason to start immediately. I encourage you to support us by identifying what role you can play in your own businesses, your networks and your community to creata a momentum towards the Ireland that we have envisioned.

Join the conversation by using #smallbizvision on Twitter @SFA_Irl and LinkedIn www.linkedin.com/company/small-firms-association

SFA Annual Conference: Next Generation BusinessHow Ireland’s Can-Do Community Adapt. Evolve. Achieve

Dear Christopher,

Small business owners fascinate me in what motivates them to be risk takers and how they bypass business conventions and make a beeline straight for the big picture, with only their ideas to sustain them. At this year’s SFA Next Generation Business Conference, Professor David Collings of DCU and other expert speakers will explore these very qualities and show how organisations like Automated Technical Controls, can Adapt to market forces, Evolve their product offerings and Achieve success in our rapidly changing business world.

Next Generation Business will focus on 3 key themes: 1) Workplace of the future 2) Environment for success 3) Due recognition forentrepreneurs. These will feature in speaker addresses and panel discussions

Charles Darwin would have understood business owners by their ability to recognise competitive advantage, mutate their idea into a fully developed opportunity and create something special to enhance their customers’ lives… This along with their talent to take risk by the scruff of the neck while scaling the sheer face of adversity, begrudgery and sometimes failure… Our Keynote speaker ‘Eddie the Eagle’, will tell you all about never giving up!

So Christopher, we would like to celebrate your contribution to the Ireland’s Can-Do Business Community, as this is what Next Generation Business is all about… You, the dynamos of our economy, and the big impact of small business now and in the future!

Kind regards,

Patricia CallanDirector, SFA

P.S. Early Bird 2 for 1 Offer for €95 + Vat if you book by 18 May

Single minded, MULTI-FACETED,trustee of dreams, ROOTED IN REASON, invested with a currency of self-belief… POTENTIALISTS, forward thinkers, FUTURE SCOPERS, minds ajar, OPEN FOR STOCK-TAKING, MIND DIVINERS, RISK FLUENT, failure acquainted… green field, VALUE-VALENT, inner circle, BRIGHTEST OUTLOOK, scruff of the neck, SEAT OF THE PANTS, local base, GLOBAL

PLACE, a class apart, A FORCE TOGETHER…

Early Bird 2 for 1 Offer for €95 + VATBook by 18 May and get 2 delegates for the price of 1

Book at sfa.ie/conf or call now - 01 605 1500

So just what is an SFA Business Owner?

#sfaconf

#sfa

conf

Adapt. Evolve. AchieveFailure: “Success is going from failure to failure without losing your enthusiasm”

- Winston Churchill

Forbearance: “I have more respect for the fellow with a single idea who gets there, than for the fellow with a thousand

ideas who does nothing” - Thomas Edison

Begrudgery: “Keep away from people who try to belittle your ambitions.

Small people always do that, but the really great make you feel that you too can become great” - Mark Twain

Small Firms Association 84/86 Lower Baggot Street, Dublin 2

T: +353 (0)1 6051500

E: [email protected] w: www.sfa.ie

LinkedIn: www.linkedin.com/company/small-firms-association Twitter: @SFA_Irl

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