At a time when the economy is performing at its strongest for many years, sentiment among small businesses has, paradoxically , softened. Small Firms Association (SFA) chair Sue O’Neill believes this is due to a lack of support for small firms in a number of key areas.
“We have a really strongly performing economy, we are near full employment, and we have GDP growth of between 3 per cent and 4 per cent, but business sentiment has declined,” she says. “In the SFA small business survey sentiment softened from 62 per cent in November 2017 to 59 per cent in November 2018. That indicates that many small businesses are not reaching their full potential in a very strong economy. And we have to ask why not?”
The cost of doing business is part of the problem, she contends. "We have a really strong multinational base in Ireland, having successfully attracted them to locate here with a strategy devised in the 1960s. These companies can afford to pay high salaries and rents and as more of them come here they inadvertently drive up those costs for small businesses.
“Access to talent and the cost of doing business continually come out as the top challenges in our surveys. The minimum wage is coming up for review again soon. Rates and rents are eroding our competitive edge.”
National strategy
The solution, she believes, lies at least in part in a national strategy for the small business sector – those companies employing 50 people or fewer. “The country needs to focus on the things that lie within our control to ensure we remain competitive. We are pushing for a national small business strategy similar to the FDI strategy.”
Tax is among the key areas which such a strategy should address. “A comprehensive tax policy is needed to help companies grow and innovate,” says O’Neill. “Tax policy impacts on so much – the ability to carry out R&D and to attract staff and investment.”
She points to entrepreneurs’ relief as a specific item to be addressed. The relief reduces capital gains tax to 10 per cent on the first €1 million of profit earned by an entrepreneur on the sale of their business under certain conditions. The corresponding figure in the UK is sterling £10 million.
“This needs to be improved,” O’Neill says.
Another area she points to is the tax credit regime for research and development. “This is very onerous for small businesses and needs to be changed. The key employee engagement programme [Keep] share option scheme is intended to be an affordable way for companies to attract talent. A lot of work needs to be done on that to promote pick-up by small business. It’s very low at the moment.”
Innovation
It's not all about tax though: innovation is critically important as well. "It contributes directly to competitiveness," O'Neill says. "And it will help us get through difficult times like Brexit. But when you look at R&D, we don't spend a lot on it. We only spend a quarter of what Israel does, for example. At the same time, we do have innovative companies.
"As chair of SFA I meet a lot of small businesses and I see great innovation happening in them," she adds. "We have our SFA National Small Business Awards and we have seen some really great examples of companies using limited resources to innovate and expand. Previous winners include highly innovative companies like the Jelly Bean Factory and Glenisk. Last year, the winner was Alto Bio, a great company based in Cork with just 11 employees which developed the first diagnostic test for the Zika virus. There are some fantastic successes out there."
She stresses the need to take a broad view of innovation. “It isn’t all about fantastic new products. It can be a better and smarter way of doing things. It can be applying new technologies to enable flexible working. And it’s not just about high-tech companies.
“We have to look at how we can help ourselves,” O’Neill says. “As part of our Grow, Scale, Succeed campaign we have launched a new online platform to help companies attract and retain the right people. The platform addresses small firms’ concerns around recruitment and employee engagement, as well as remote and smart working.”
The State has to do its bit as well, she concludes. “Infrastructure is really important. We need a really good broadband and road network. We need the National Broadband Plan to be rolled out urgently.”