Navigating Global Business Challenges in 2023

Irish business resilience amid global uncertainty

Despite considerable uncertainty around the global economic environment, Irish businesses remain positive and pragmatic when it comes to making 2023 a success. But sector-by-sector, this looks and feels very different; businesses will be relieved when inflation starts to reduce, but those working in the hospitality sector still face challenges that are squeezing their cashflows such as the recent return of VAT levels to 13.5%.

Rising insolvencies continue to be a real and concerning threat to businesses. Latest statistics published by Deloitte Ireland show that a total of 329 corporate insolvencies were recorded in Ireland in the first half of 2023, with 186 recorded in Q2, representing the highest quarterly level since Q1 of 2019 (195).

But again, the sector-by-sector outlook is unequal. The European Commission’s Spring 2023 Economic Forecast states that industrial production volumes, and information and communication services’ turnover remain strong. Exports will also continue to be a key driver of growth, helped by the Northern Ireland trade deal reached earlier this year. The Central Bank Quarterly Bulletin 2023 has recorded that there has been a 15% increase in Irish exports in volume terms, mainly attributed to the activities of Multi-National Companies in ICT services and pharmaceuticals.

And for SMEs who can export, the outlook appears encouraging. Exports across the board are forecast to grow by 8.2% this year, and a further 6.2% in 2024, which will support growth in GDP terms averaging over 5% per annum for another two years.

Financing and investment are critical to Irish SMEs’ success. And the withdrawal of Ulster Bank and KBC from the Irish banking market in the past six months has had a subsequential impact, unlocking opportunities for other financial service providers to attract new customers and grow their portfolios, while allowing SMEs to sit down and properly consider the financial options available to them to set themselves up for success.

New research from Bibby Financial Services echoes these wider economic indicators; our 2023 Global Business Monitor shows that overall, Ireland’s outlook remains positive in 2023 and beyond, with inflation expected to reduce, despite high prices and rising interest rates continuing to drag on growth. At 90% on a measure of confidence, Irish SMEs are, alongside Germany, the most bullish of nine countries surveyed about their business prospects in 2023. This confidence doesn’t, however, extend to the global economic environment, with half of Irish SMEs (51%) believing the global economic conditions are worse now than during the pandemic.

Growth feels achievable to Irish SMEs, with 72% saying they expect sales to increase in the next six months. They see attracting new customers (67%), building new supplier relationships (36%), taking on new staff (24%) renegotiating with existing suppliers (23%) and exploring new distribution channels (21%) as the key opportunities for the year ahead.

Overcoming challenges for a positive future

Not surprisingly rising costs and inflation were the top concerns at 64% followed by energy costs (62%), supply chain pressure (30%), interest rates and the cost of borrowing (27%), and the conflict in Europe (24%).

As a result, Irish businesses are taking measures to navigate cost increases and inflation, with 57% increasing prices to customers, 38% reviewing their supply chains for efficiencies, and 14% freezing recruitment plans. Furthermore, a reduction in suppliers is also putting a strain on costs for Irish SMEs, for whom 34% of their suppliers have entered administration in the past 12 months.

However, 88% of resilient Irish businesses say they intend to invest an average of €108,850 this year. When compared to other countries, this is just behind Germany which is most optimistic at 93%, but ahead of France and Slovakia (both 86%). Areas that they are looking at include marketing and sales (37%), staff training and development (34%), and new staff recruitment (23%). These top three investment areas display the that Irish businesses are prioritising the quality and retention of their employees, investing in hiring the best and upskilling those within their business.

Although there is a number of challenges and concerns facing businesses today, Irish SMEs are resilient because they care about their employees, their customers and supply chains. While 14% of businesses are intending to freeze recruitment as a way of coping with cost increases, more than half (57%) are also intending to invest in their staff this year, showing that Irish businesses acknowledge the role their employees play in their growth, and vice versa.

What is very clear across all markets is that SMEs need all the support they can get from both the private and public sectors. Such funding is vital in ensure businesses can deal with the range of issuing facing them such as inflation and supply chain disruptions as well as offering them the opportunity to invest and grow.

Unfortunately, many business owners are often unaware of the broad range of funding options available to them as they wait for customers to settle outstanding amounts. The traditional banking landscape has changed dramatically over the past few years and while Irish banks were once the mainstays of finance providers for Irish businesses, there is now a significant range of alternative financial institutions who offer a host of reliable solutions.

Overcoming the "Investment Gap"

Alternative finance options, such as invoice finance, are now playing a more important role in a sustainable funding landscape.

As alternative funding solutions provide certainty of payment and more sustainable sources of liquidity, they are often far more suited to the needs of an SME than traditional lending options. They also don’t involve borrowing any money – which is often a key factor for SME’s as they simply don’t want to take on term debt or cash flow loans that will result in monthly repayments for years to come. This hesitancy to take on debt is creating what we are calling ‘an investment gap’ at SME level in Ireland. This is resulting in a barrier to growth for Irish SME’s and what many companies don’t realise is that alternative funding solutions can help SMEs to overcome this barrier.

For example, if you have €300,000 or €3,000,000 currently owed to you by your clients, Invoice Finance can allow access up to 90% of the invoice’s value within 24 hours. The remaining balance will then be paid to you minus an agreed fee, when the customer has paid their bill. So, unlike a loan or overdraft, Invoice Finance does not involve ongoing monthly repayments. This revolving credit option means that once your invoices are paid, you can continue the cycle – upload your invoices, draw down, use the funds and simply repeat. The benefit is that you can access multiples of the funding required, compared to a fixed line of credit.

Other alternative finance sources that businesses can consider, depending on their requirements, include grants, fintech, venture capital, angel investors, peer-to-peer lending and crowdfunding. Obviously, the best solution for the business could even be a mix of options, such as a term loan with a traditional bank combined with some investment and an Invoice Finance facility.

So, while the Irish Government, as well as governments around the world, continue to formulate economic plans to tackle a range of era-defining issues, SMEs remain confidently poised and ready to take on the challenges facing them. The fact that so many are positive about their own prospects in the face of these challenges is testament to the ingenuity and determination of SME owners at home and across the world. Yes, there is no one-size-fits-all solution to navigating the uncertain outlook ahead, but by ensuring they have access to a range of financing options that provide sustainable working capital and cashflow, they will be able to overcome any challenges and take advantage of any opportunities that arise over the remainder of 2023.