Why Are SMEs So Important To The Irish Economy?

It’s absolutely fair to say that small businesses and start-ups are crucial to the Irish economy. 

Organisations that employ under 50 people in fact account for a whopping 98% of all Irish businesses. Indeed, recent figures show that around 250,000 SMEs are active in the country at the moment.

Economically even the smallest of businesses have a big impact in large numbers, accounting for around half of all Irish employees working in the private sector. In this blog, we look at some of the challenges SMEs face, how they can be overcome and how R&D tax relief can help.

How do I know if my company is an SME?

This one’s pretty simple - if you’re a new business or only employ a few people then you’re likely an SME. SME stands for Small and Medium Enterprise, but the term includes Micro enterprises too.

However, the European Commission is quite specific in what it classes as an SME. Typically, it’s in relation to how many people the business employs, and how much money it turns over.

Most SMEs are considered Micro. The European Commission defines these as having fewer than 10 employees and an annual turnover of under €2 million. Likewise, it goes on to stipulate that a ‘small’ enterprise (rather than micro) will have a maximum of 50 employees, or under €10 million in turnover/balance sheet.

Finally, and for clarity, the European Commission defines medium enterprise as an organisation that has between 50 and 250 staff members, and a turnover of under €50 million (just 1% of SMEs are in fact medium).

What are the biggest challenges for Irish SMEs in 2020?

All SMEs face challenges, and this year is already proving especially tough. We’re talking of course about the coronavirus COVID-19.

It’s very early days, and there’s still much public concern not just around physical health but around what kind of economy we can salvage at the end of it. The Irish government has put in a raft of measures to help prop up businesses during this exceptionally difficult time, but sadly many SMEs will still not make it. However, even in ‘normal’ times there are many challenges SMEs face, and will continue to face, long after the battle with COVID-19 is won.

Cashflow

Aside from COVID-19, cashflow is another big issue for SMEs as it’s the lifeblood that maintains daily operations. It’s often hard to get the trickle of cash flowing into a river, especially in the early days, and effective management of it is vital too.

Having ups and downs in cashflow is normal in business - sometimes things are good and other times they’re hard. But it’s important to be on top of ways to increase cashflow wherever possible, and to build up reserves that can help with the lean times. For many SMEs, a late paying customer or a slump in sales beyond their control can be the difference between surviving or not. So it’s well worth investing some time in cashflow planning.

Creating the perfect team

The people a company needs to run its operational, marketing, development, accounting and sales is the key to success.

In order for a business to grow and thrive, its owner or managing director needs to hold a purely strategic role rather being too concerned with day-to-day running. Having a trusted, highly skilled team in place will facilitate this, and gives the chance for each team to take a vested interest.

Strategy and goals

An unfortunate by-product of a lack of leadership for most SMEs is a difficulty in achieving effective business planning. The good news is that nowadays there are business planning tools available that makes focussing on business goals much easier.

It’s always worth setting goals for the business right from the outset, and revisiting them repeatedly over time. Just like a roadmap, a clear strategy is great for team development and for getting where the business needs to be.

Funding growth

When a small company is busy with day-to-day costs and paying the bills, it’s tempting to put investment into innovation on the back burner. This is a poor strategy long term however, as without innovation and research and development (R&D), the company will soon lose its competitive edge. Not investing in this way is a sure fire way to simply stand still, as it’s not conducive to the building or redeveloping of new products or services. Standing still, of course, makes long term business survival less likely.

But innovation is expensive - and the Irish government acknowledges this. Which is why it offers R&D Tax Credits.

What are R&D Tax Credits?

The R&D Tax Credits scheme offers tax relief in respect of recognised R&D project costs an Irish company has incurred. The credit is calculated at 25% of eligible expenditure and reduces a company's Corporation Tax liability. Any company can apply and the scope of qualifying projects is massive. The benefit amount can also easily run into the thousands - why miss out?

Basic qualifying criteria says that companies must be based in Ireland and be subject to Corporation Tax. They must also have carried out applicable R&D work inside Ireland or another EEA member state. Finally, the expenditure must not be eligible for a tax deduction in a country outside of Ireland.

What types of R&D activities may be eligible?

To be eligible for R&D tax relief, a company’s R&D activities must involve systemic, investigative or experimental activities in the field of science or technology. There must also be basic or applied research involved, which looks to address a specific scientific or technological uncertainty. There is no requirement for the R&D project to actually have been a success - as long as risks were taken in finding a solution.

You can find out more and how to apply on our R&D Tax Credits page.

Get in touch today

As a highly specialised R&D tax credits consultancy based in both Ireland and the UK, R&D tax relief is entirely what Myriad Associates is about. With nearly two decades of experience we only deal in R&D tax relief and will be happy to guide you through the complexities of a successful claim. Simply call +353 1 566 2001 for straight-forward, friendly R&D advice or use our contact page.