Next Generation BusinessA vision for small fi rms in Ireland

Small firms in Ireland (<50 employees)

98% of all businesses

49% of private sector employment

New firms (<5 years) ■ Second fastest growing in the EU ■ 2008-2012: offset over 40% of job losses in the broader economy

ChallengesSetting up: Rate of new business formation low (6.8% vs. UK 11.8%)

Survival: Less than 1 in 2 (48%) still trading after 5 years

Exporting: Small firms (98% of all firms) responsible for 6.4% exports

Innovation: Low, especially indigenous small firms

Management skills: Long tail of poorly performing firms

>50% of employment in 17 counties

One third of total value of the Irish economy

How?1. Culture and recognition2. Education and skills3. The business environment

Government, state agencies, educators, individual businesses (both large and small), representative organisations and the general public all have critical roles to play.

Opportunities ■ Employment: Current trajectory +100,000 by 2021. By addressing set-up and survival challenges: +195,000 by 2021

■ Increase productivity by 5%: +1.5% to GDP permanently. Increase to UK levels: +4.9% to GDP permanently

SFA Vision

“ Ireland – the most vibrant small business community in the world – supporting entrepreneurship, valuing small business and rewarding risk takers.”

Culture and recognitionSmall business often does not get the recognition it deserves because its contribution is based on thousands of smaller investments and jobs created every year rather than once-off ‘big bangs’. Much of Government policy is based on backing winners and attracting foreign multi-nationals, rather than creating an environment for more and more indigenous businesses to establish, create jobs, survive and succeed.

An 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. No business owner should 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.

Culture can change. Changing the language around entrepreneurship to that of business owners, exploiting business opportunities with realistic risk assessment will make business setup less of a ‘rags to riches’ dreamworks and encourage more people to take the rational decision to go into business. Successful business owners should embrace the role of mentor or non-executive director for other small business and should share their experience with local schools and community groups. Entrepreneurs whose businesses have failed should be supported to start again.

Education and skillsThe 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. In primary and secondary schools, project work, student-led initiatives and interaction with local businesses should be mainstreamed. Entrepreneurship should be presented as a viable career choice.

Later, in higher and further education, courses such as engineering, journalism and ICT should integrate entrepreneurial education. Students should also be trained to recognise what they don’t know and identify how they can fi ll the gaps by upskilling or collaboration.

Management capacity also needs to be developed through training and upskilling. This is key to addressing the problem of more than half of businesses failing in their fi rst fi ve years.

The business environmentMany people who have a potential business idea will be deterred from taking the plunge if the business environment creates unnecessary barriers. The practicalities of setting up a business are relatively straightforward in Ireland, but more can be done to communicate the government supports available and make it easier for new companies to win public and private contracts without a long track record.

The government must ensure it does not infl ate the cost of doing business through red tape, statutory wage rates and commercial rates. It must eradicate discriminatory treatment of the self-employed in the tax system. Access to fi t-for-purpose fi nance for small businesses must be improved by increasing competition in the banking sector and cultivating the alternative fi nance market.

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 additional public and capital expenditure. The result would be a win-win situation for government, businesses and society.

Priority actions1. Accept that many business owners 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. Develop Government policy away from backing a handful of winners.

2. 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.

3. Politicians, government officials, those in advisory professions and the media should speak responsibly and respectfully about small business and small business owners, profit-making and honest business failure.

4. 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.

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

6. 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.

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

8. 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 in their field of expertise.

9. Managing cashflow is the essential ingredient in all business finance. Owner-managers should recognise the importance of financial literacy for them and other managers in their business and avail of training.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. Acceptance of and access to various forms of equity is critical – owner-managers must believe that owning 70% of something big is better than owning 100% of something small. This issue merits the establishment of a government-led working group to specifically examine how to improve uptake of equity investment in Ireland.

Small Firms Association84/86 Lower Baggot Street, Dublin 2

T: +353 (0)1 6051500

E: info@sfa.iew: www.sfa.ie

LinkedIn: www.linkedin.com/company/small-fi rms-associationTwitter: @SFA_Irl