Blog

By Mark O'Rourke, Managing Director, Ireland

04 Jun 2021

There’s no doubt that the Covid-19 pandemic created huge uncertainty for SMEs across Ireland, compounded by an already unpredictable business environment in 2020 as the final Brexit deadline approached.

SMEs faced disrupted supply chains, closing retail outlets, seismic changes to consumer behaviours and regular amendments to government advice and support. As restrictions have begun to be eased, timing has become key for businesses as they consider when and how they ramp up their operations in 2021.

SMEs now need to do what they are best at - adapt swiftly to the changes that we know are coming. On this basis, I believe there are two key areas that businesses should be thinking about now as they plan their roadmap to recovery: Recruitment and Supply Chains.

With a return to more normal operations now on the horizon, serious questions have to be asked about when to engage in recruitment. It’s a tricky decision – SMEs can’t do it too early or they’ll have a big payroll with no income to match, but they also can’t leave it until lockdown restrictions are lifted as, at that point, they will need to already have systems in place to ensure they are ready to hit the ground running.

Competition and capital are crucial considerations when it comes to recruitment. With tens of thousands of businesses potentially opening their doors at the same time, the jobs market is likely to pick-up very quickly and competing to find and attract the right talent is going to take time. It will also require adequate working capital. A balancing act will need to be struck, and this will differ from business to business and sector to sector.

The second important area to focus on is supply chains. Every business in Ireland is directly or indirectly feeling the ongoing pressures caused by the Covid-19 pandemic and the knock-on effects from Brexit related issues, particularly around their supply chains.

Ahead of the economy reopening fully, factories need to ramp up production, distribution networks need restarting, and shelves need to be restocked. All of this activity will need to happen quickly, as businesses wake up from months of hibernation, but this raises questions about how cash flow can be managed effectively across so many moving parts.

Such challenges are further compounded by delays at the EU border. Even businesses that do not rely on import/export will be affected by their economic relationships with those that do. For any SMEs that do rely on trade with the continent, the risks and challenges simply increase.

SME owners are often natural networkers, and now is the time to leverage these ecosystems to future proof their businesses and grow again. Responding to new customer demand, expanding trade routes to new markets and finding new ways to distribute products are all activities that can be planned for now.

Government measures introduced at the start of the pandemic were absolutely necessary to support the economy, but were only ever intended as short-term measures. The focus now needs to switch to measures that allow SMEs to take control of their future, plan for the long-term and focus on growth.

While lockdown measures will eventually be eased as part of the Government’s phased approach, the imminent need to start repaying liabilities is going to create yet another challenge for SMEs. It is here that the private sector can and should be playing a greater role. Alternative finance options, such as invoice finance, which unlock value from within a business without the need for additional long-term debt, will be a vital part of a more sustainable recovery.

These alternative financing options can also play a role in companies who are interested in Covid-19 Credit Guarantee Scheme (CCGS) in the coming months. Not surprisingly, many business owners reflecting on a disruptive Covid-19 pandemic may have decided it’s time to exit their business or, instead, have come to the conclusion that now is the time to restructure, refocus, innovate and grow.

With businesses looking to engage in restructuring without having to borrow money, it’s perhaps not surprising that, at Bibby Financial Services, we’ve seen a significant rise in the use of Invoice Finance as a way of partly financing these deals or even on a standalone basis.

One recent customer utilised the facility to finance a Management Buy-In. In this case, Bibby Financial Services were approached by experienced corporate financiers who wanted to fund the purchase of a majority shareholding in a professional services business. The company was turning over €3m annually and had a well-established client base generating impressive margins.

The existing management team had the opportunity to facilitate this ‘buy-in’ by the new investors and wanted to realise some value for their previous efforts but remain with the business on an earn-out basis for a period thereafter. A deferred consideration will be paid for the balance of the shareholding over the following years and the incoming majority shareholder will take a seat on the Board immediately under the MBI.

Invoice Finance was an ideal fit to release the required cash and help fund this management buy-in. A confidential Invoice Finance facility was used towards the initial contribution and continues to provide essential working capital to allow the business trade-on successfully without any cash flow concerns.

This year holds the potential to be one of incredible growth and recovery. Yes, there are still significant challenges to overcome, and yes there is still a lot of uncertainty, but across the country thousands of SMEs have shown that they are capable of adapting to change and overcoming challenge.

This change will hopefully see a long-awaited return to a more normal way of working and living. For SMEs, now is the time to plan, find the right partners to achieve long-term ambitions and, most importantly, ensure they thrive in a transformed economic landscape.


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