Irish SMEs say jobs are at risk as rising costs add to pressures

Rising utility costs, falling profits driving 15% of small firms to lay off staff when the employment wage subsidy scheme end

Caitriona Allis, head of ACCA Ireland, whose joint survey with Grant Thornton highlights the pressures that Irish SMEs across a range of sectors are facing from rising input costs.

Soaring utility bills are adding to other mounting costs and pushing small businesses across the island of Ireland towards job losses, says Caitriona Allis, head of ACCA Ireland.

The all-island chartered certified accountancy group has published a number of surveys with partners north and south. The collective responses point to longer-term optimism among small businesses north and south, but a shared view that Government support is needed to offset immediate soaring costs.

“The research reveals a very uncertain start to the new year for SMEs, countered with optimism about the long term for 2022,” says Caitriona Allis. “However, this essential progress can’t be achieved without the cashflow, and people to help them grow, or indeed the resilience to do this too.” 

 Research from ACCA and Grant Thornton has found that 15% of SMEs are expecting to lay off staff when the employment wage subsidy scheme comes to an end due to the rising costs.

The research, which reflects the views and outlook of 8,000 SMEs across a range of sectors, found that costs on average for SMEs have risen by 25% which is having a major impact on profitability and the ability to meet payroll demands.

The research found that 40% of small businesses have had to pass on increased costs to the consumers and businesses they serve. Some 15% of small businesses are expecting to lay off staff when the employment wage subsidy scheme comes to an end due to rising costs and falling profitability.

In terms of immediate actions to protect jobs, some 86% of SMEs indicated that there must be more support for small businesses to cope with these rising costs.

The increasing costs are impacting cash flow with nearly 20% of SMEs struggling to meet monthly payroll commitments and it has also resulted in almost 40% having to pass on costs to customers within the price of the goods and services they provide.

Caitriona Allis said: “We welcome the Government’s decision to cut VAT on fuel bills, but we would also urge policymakers to keep further reductions under review. The economic conditions facing our small business sector are extremely challenging with many still in recovery mode from the pandemic which is impacting their ability to absorb rising costs.

“Inflation is now at its highest rate in 21 years at 5.6% and is expected to peak at 8.6% later this year. This increase is being driven largely by rising energy costs and with energy prices also expected to increase further, many small business owners will be faced with difficult decisions in the months ahead to ensure their business remains viable.

“The present economic uncertainty is showing no signs of easing anytime soon and that is why it is vitally important that we continue to support our SME sector through this difficult period.” 

Andrew Webb, chief economist, Grant Thornton, said: “These findings are consistent with a decline in optimism that has emerged across various sentiment trackers. The inflationary pressures that emerged as pandemic restrictions were lifted were expected to pass by this summer but ‘higher for longer’ is the unfortunate summary of what inflation is doing. Inflation is now expected to peak late this year or early next.

“SMEs are feeling this from two directions — higher input costs and via a ‘squeezed consumer’ that is having to divert more spending to essential items such as heat and food. This reduces the amount available to spend on non-essential items, hindering large parts of the economy. These elevated rates of inflation are expected to pass but that is cold comfort to SMEs plotting a course through the next 6-12 months.” 

Meanwhile, very similar pressures are impacting small businesses in Northern Ireland, where ACCA and the Corporate Finance Network (CFN) polled accountancy professionals on the financial outlook of their clients.

The ACCA/CFN joint SME Recovery Tracker found that UK inflation at 5.4% and interest rate rises of 0.25% to 0.5% have heightened supply chain issues have been impeding SMEs’ ability to survive or grow since the start of this year.

The rising energy costs, complications gaining access to finance, and the UK’s social care levy have all added to the challenges facing SMEs north of the border.

“The government needs to seriously consider the economic implications of the planned hike in national insurance rates and the impact it will have on SMEs, who serve as a backbone to the UK economy,” said Caitriona Allis. “Ultimately, these figures point to the danger of businesses failing.”