Over the last two years, a more diverse funding ecosystem has emerged in Ireland. Ambitious small- and medium-sized enterprises (SMEs) can now access the funding they require to grow, but only if they are able to present their business in a professional manner to institutional investors. This new funding landscape includes private equity, bank funding, non-bank lending, family offices, Government SME supports, peer-to-peer and crowd funding options. There are a range of other supports available, such as research and development (R&D) tax credits, which can also help to fund growth strategies.
SMEs now find their businesses in a more positive trading position and the conversation has moved from restructuring to setting out ambitious growth strategies and choosing the right funding. Most SMEs need help and support selecting the most appropriate funding partner and presenting their business case professionally.
Irish business owners are always concerned with the impact of investment and possible dilution. However, an experienced and trusted adviser will understand the diverse approaches that investors take and the deal parameters that will work. Nearly every business owner underestimates the work required to present their business to investors and the experience of an adviser is invaluable in getting your story across. It’s such a shame that so many great business opportunities still fail to get the funding they need simply because they are not presented in the way investors expect and need.
The operational style and modus operandi of investors differs. Some are very hands on and directive while others are more arms-length, preferring the high-level view. Relationships always run smoothly when the results are good, but you also have to prepare for the potential speed bumps.
Innovation and SMEs
Innovation has become a key differentiator for SMEs seeking to expand and grow their business in a cost-effective manner. For example, recent changes by Revenue regarding R&D tax credits may help to convince more SMEs to embrace initiatives around innovation. In addition to the R&D tax credit regime, it may be possible for some SMEs to qualify for the Knowledge Development Box (KDB), a new regime effective from 1 January 2016 that offers an effective tax rate of 6.25% on qualifying profits derived from underlying intellectual property.
The new guidance offered by Revenue, along with ongoing support from expert advisers, could provide SMEs with significant advantages in terms of:
- Initial project funding through IDA/Enterprise Ireland grants;
- Ongoing monetary support and an ability to further invest in the R&D efforts through the tax credit regime; and
- Increasing profits realised post-R&D through the KDB regime.
BDO measures business sentiment among SMEs across the country every quarter. Our most recent findings, published in our quarterly Optimism Index, indicated that four out of five companies felt that the Government was not providing them with enough information to prepare adequately for Brexit.
It’s becoming clearer every day that there is a pressing need to be prepared for the potential impact of Brexit. We’re advising SME clients who may be affected by Brexit to analyse their supply chains and business strategy, so that they can isolate their exposure to the British market.
In line with the Government’s drive to make Ireland the best small country in the world in which to do business, there are State services and grants available such as the Enterprise Ireland Brexit scorecard and ‘Be Prepared’ grant. Accountancy firms, Enterprise Ireland and Local Enterprise Offices are resources that should be utilised by SMEs to assist with this preparatory work.
SMEs represent more than 90% of Irish businesses and employ more than 70% of the workforce. We need to ensure that they are supported so that they can continue to grow and thrive.
Michael Costello is Managing Partner at BDO Ireland and a member of the firm’s Brexit Taskforce.
Originally published by Chartered Accountants Ireland.