SFA Dirty Dozen Problems for small business


The Small Firms Association has released the findings of its 7th Annual National Business Survey, which highlights the twelve most negative factors impacting on the ability of small businesses to invest, develop, expand and maintain and create new jobs.

Commenting on the findings, SFA Director, Patricia Callan said that one of the major features of the Irish economy over the past five years has been a significant deterioration in competitiveness and this survey clearly shows that the costs of doing business in Ireland are rising more rapidly than in competitor countries.

“As an economy, we forgot how to compete - believing instead that the Irish economy was indestructible and that the world owed us a living. We believed that we could pay ourselves more than anyone else simply by increasing our prices and that no one would notice. We awarded ourselves wage increases three times those of our international competitors. We presided over an inflation rate more than twice the European average. We were unquestioning over the significant growth in public spending, falling exchequer receipts, infrastructural problems in public transport, telecommunications, waste management and public utilities. All of these are now making Ireland an expensive and unattractive place to do business.”

She added - “The reality is that Irish small businesses must now operate in a globalised market-place - which, whilst presenting opportunities in terms of bigger markets, greater sales and sourcing opportunities, also brings with it tougher competition operating from lower cost-base economies.

"In the years ahead, intensified international competition will impose increased pressures on Irish businesses to perform to the highest international standards. Irish small firms now have to compete with companies who have advanced business models coupled with economies of scale in every aspect of their business. To be successful in this new world order, Irish small businesses will have to bring their own cost base back under control.”

The survey was distributed to a sample 3,500 of the SFA’s 8,000 member companies and 1,090 companies responded. The companies were drawn from manufacturing, distribution, retail and services sectors and from a regionally representative sample - with all parts of the Irish Republic included.

According to Callan - “while labour costs remains the most significant issue for business, major threats have now emerged in the burden of inflation, energy costs, skill shortages, insurance costs and red tape/increasing legislation. 13% of respondents cited labour costs as their single biggest threat and 87% as a major business problem. Growth in the economy has been pushed to levels in excess of its potential and the result has been an overheated economy with higher wage costs, high inflation and increased input costs. However, it is now critical that productivity growth meets these cost increases in order for businesses to regain lost competitiveness.”

To view Tables outlining the main findings of the survey - Click Here

Callan continued - "76% of small firms indicated that inflation is a major business problem. The consistently high inflation figures (4.7% in May) shows that all sectors of the economy are under pressure. Small businesses are hurting as they are facing higher direct input costs - including the increased cost of purchasing manufactured goods - and many are unable to pass this cost onto their own business or domestic consumers.

"Our inflation rate is a key component in regaining lost competitiveness and serious efforts must now be made by the Government to bring this within acceptable limits. There must be clear recognition on all sides that labour costs - as a key component of the small business cost base - must be restrained.

In relation to energy, Callan said - “Energy costs are cited as the third largest business cost - with 9.7% of respondents stating it is their single biggest threat and 66% as a major business problem. Not alone are energy prices affecting inflation, but crippling increases in oil, electricity, petrol and gas costs are directly undermining the entire business community and, indeed, civil society.

"With the threat of further substantial increases hanging over us, it is clear that the Government needs to act now to ensure that we have in place a desperately needed business-friendly energy policy, which ensures the secure, reliable, efficient and competitively-priced delivery of energy, which is a key ingredient for the successful growth of an economy competing in a global marketplace.”

Commenting on skills shortages, Callan added - “the availability of skilled labour remains a concern for 9.6% of companies and this is mirrored by 56% of all firms stating that it is a major problem for their business. There is now clearly a mismatch between the skill levels of those workers who are being made redundant and the positions in which there are job vacancies - in particular, there is a need to retrain construction workers to do other skilled jobs in the economy."

Increasing legislation/red tape is listed as a significant problem for small businesses, with 8.4% of companies citing it as their No. 1 problem and 40% citing it as a major business problem. Callan commented - “There needs to be a greater recognition by Government of the hidden costs of regulation and its overall impact on competitiveness. In the Report of the Business Regulation Forum, it was estimated that excessive regulation cost Irish businesses over €500 million a year. Think of what extra business activity that €500m could have generated. It has, undoubtedly, fuelled rising costs."

In conclusion, Callan stated - “the Irish economy is now in the grasp of a major downturn and the cost of doing business is still increasing daily, due to a combination of strong growth in wages, high inflation, high energy costs, skill shortages and a more onerous regulatory environment. The move to a high cost, high wage economy must be matched by higher productivity, improved physical infrastructure and reductions in input costs from the sheltered sectors of the economy.”