What happened to being the best little country to do business?

4 Jun 2019

Image: © Monica/Stock.adobe.com

Businesses are beset by frictions, from soaring insurance to a looming succession crisis. John Kennedy wonders what kind of policy message we are sending to our future entrepreneurs.

There can be few owner-managers of businesses across Ireland who didn’t grit their teeth at the recent hoopla surrounding a TD dropping her legal case against a Dublin hotel following a fall from a swing during a night out.

It is not our job to be judge or jury here. But it matters chiefly because it fed into a narrative about how insurance costs have become a cancerous rot that is eating the heart out of businesses in Ireland.

The legal quagmire whereby a policy of awarding lucrative payouts for, in many cases, spurious claims has resulted in insurance premiums shooting through the roof.

Businesses are closing because of astronomical premiums. Whether it is Dave Robinson closing the popular Rathbeggan Lakes family venue because of insurance costs or Boyne Valley Activities closing after a 400pc insurance hike, we are only at the tip of the iceberg on this one. It is spilling over into the digital economy too, with online travel agency Click&Go revealing today (4 June) that it has been hit with a 700pc insurance hike.

An existential crisis for business owners

I’ve said it before and I’ll say it again: despite SMEs employing the majority of people in Ireland, they are on the back foot thanks to ineffectual policy.

Most SME owner-managers do not pay themselves as well as their loyal employees who, in turn, lack many perks that multinational or public sector workers take for granted, including pensions and shares.

Many owner-managers are also engulfed in the skills crisis that has swept over from the tech, pharma and other highly skilled industries and into the mainstream.

Retention is the new war. And many owner-managers are losing.

According to CSO figures, the number of SMEs in Ireland in 2015 accounted for 99.8pc of the total number of enterprises in the country and employed 69pc of workers in Ireland. SMEs generated almost 48pc of total turnover in the business economy and almost 39pc of gross value added was attributed to these enterprises.

SME employers have their hands tied when it comes to keeping up with the salaries and benefits that multinationals can offer to reward talent.

So why, compared with the generous way we treat multinationals, are we on the road to ripping the guts out of our own indigenous economy?

Failure to address this issue will be a cancer that will eat the SME sector from the inside out for the foreseeable future, unless addressed.

In Budget 2019, there were no changes made to the unfit-for-purpose capital gains tax system. Not one mention of it.

Not only that but Minister for Finance Paschal Donohoe, TD, acknowledged the failure of the Key Employee Engagement Programme (KEEP), which has failed to incentivise employees on the island of Ireland.

Baby boomers prepare to exit

In recent weeks Gill Brennan, CEO of the Irish ProShare Association (IPSA), warned that over the next 10 years, hundreds, if not thousands, of ‘baby boomer’ business owners will be looking to retire in Ireland. Aside from the obvious questions about what they will retire on or if their loyal employees have shares or the same gold-plated pensions that their public sector counterparts enjoy – most actually don’t – there is a tipping point ahead.

Most of these managers will likely exit through a trade sale in the hope of retiring on whatever’s left over when the dust settles.

As Brennan pointed out, most companies are sold in a trade sale. This is a process that frequently results in job losses and businesses being moved from locations where they had been for decades.

She called on the Irish Government to make it easier for the owners of SMEs to use Employee Ownership Trusts (EOTs) to sell their business to their employees. She pointed out that Ireland’s legislation currently lags countries such as the UK, where easy-to-use, tax-efficient EOTs have proven popular among hundreds of retiring business owners in recent years.

“In contrast, the Irish Government has failed to embrace this model and update the equivalent model here, Employee Share Ownership Trusts, which were created specifically for semi-State companies and are less suited to SMEs.

“IPSA wants EOTs to be developed so that employees can buy the company they work for in a tax-efficient manner from the original owner. This would ensure the legacy of the business, recognise the contribution of the employees to the value of the business, all while allowing the owners to recognise full financial value from their company.”

It’s not an unreasonable idea and the Department of Finance needs to take heed. If a sector that accounts for a huge proportion of Ireland’s workforce is facing an existential crisis on at least three fronts – insurance, retention and succession – the job of Government is to act. Note, I didn’t even mention the problems of exorbitant rents and rates that are also sucking the life out of business in Ireland.

Last week, Enterprise Ireland revealed that Brexit has negatively impacted 40pc of Irish exporters. And that’s before Brexit has even happened.

In the tech sector, founders and staff who exit with shares go on to found and invest in other start-ups. This creates jobs and so forth. This is not happening fast enough in the SME world with its panoply of vital sectors.

If people who are the pillars of their local business community are being punished or forced to close down because policy is failing to keep up with reality, what kind of a message are we sending to our future entrepreneurs? Those people we will need to take risks and create the jobs and businesses of tomorrow?

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John Kennedy is a journalist who served as editor of Silicon Republic for 17 years