The Covid-19 pandemic has decimated revenues at many Irish small and medium-sized enterprises (SMEs). But it could also prove a crucial period in their embrace of digital technology, both to run their own operations and as the means by which they raise funding.
After accounting for reported reductions in wage and non-wage costs, revenue shortfalls for 2020 are estimated at between €10.3bn and €11.7bn across the SME sector, although these estimates are subject to significant uncertainty, according to figures published in October by the Central Bank of Ireland in a note about the impact of Covid support policies.
This debate is more about how technology can augment people and organisations. We cannot be complacent; this is about preparing SMEs, professional service providers and everyone for such change
Analysis from Ireland’s Economic and Social Research Institute earlier in the crisis found that around two in five micro-sized businesses and one in two SMEs faced a revenue shortfall (where revenue fell below expenditure on a monthly basis) in the initial lockdown period from March to June 2020. The total shortfall across SMEs over this period is estimated to be between €6bn and €10bn.
While firms had some cash resources built up prior to the pandemic, this was insufficient and a shortfall of between €2.2bn and €4.3bn was accumulated.
Continuing shortfall
Looking to the end of 2020, estimates for the total revenue shortfall for SMEs come to between €8bn and €15bn. Again, internal resources would cover some of this shortfall for firms but would still leave between €4bn and €8bn in uncovered losses.
’The Covid-19 pandemic has been an unprecedented economic shock for Irish SMEs. Nearly one in every two small firms suffered a loss during the lockdown phase and this amounted to between €6bn and €10bn across these enterprises,’ says Conor O’Toole, one of the report’s authors and a senior research officer at the ESRI.
‘While many firms had access to their own cash savings to help survive the period, these buffers are likely to deplete, leaving many firms struggling to survive.’
Finding funding
Central Bank research indicates that these shortfalls will be met by a combination of utilisation of pre-existing SME cash reserves, draw-downs of existing credit commitments, new borrowing, government non-wage grants and reliefs, guaranteed loans and loss-sharing where payments have been missed.
Procurement support
InvoiceFair, an Irish cloud-based trading platform giving SMEs quick access to flexible working capital finance, has seen demand rise for its cloud-based solutions, says company CFO Peter Brady. For instance, this year some Irish businesses procuring PPE for the healthcare sector ‘required sizable upfront funding to secure production and product in Asia’, leading them to use InvoiceFair’s purchase order finance product, which enables companies to trade up to 70% of the value of their purchase orders.
Digital shift
During the lockdown period, digitalisation of Irish SMEs has accelerated, according to Erik O’Donovan, head of digital economy policy at Ibec, the Irish business lobby group which also represents Ireland’s Small Firms Association.
‘Our research indicates a business move towards more online sales, coupled with greater use of remote working and increased investment in technology, pointing to a more digitalised way of conducting business into the future,’ he says.
O’Donovan stresses that this does not spell the end for small business accountants. ‘Some tasks are repetitive and therefore lend themselves to automation; other tasks, such as strategy or handling complex business relationships, do not,’ he says.
‘This debate is more about how technology can augment people and organisations. We cannot be complacent; this is about preparing SMEs, professional service providers and everyone for such change.’
Alan Shaughnessy, a partner at Galway-based DFS & Co accountants and business advisers, agrees that this is the perfect time for SMEs to embrace technology. ‘We would have pushed clients a lot in recent years to digitise, but with Covid they’re a lot more receptive to software solutions and how to use them better,’ he says.
Such accelerated digitisation will improve the competitiveness of Irish SMEs in the long run, says O’Donovan. ‘Cloud computing offers enormous advantages in terms of cost efficiency, security, flexibility and ease of scaling – especially important to SMEs,’ he says.
‘For example, cloud applications allow firms to only pay for the IT services they consume and avoid the capital IT investments traditionally required.’
With pressure on finances growing, using digital technology to improve internal processes and source new funding is becoming a critical consideration.
