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86% of SMEs optimistic about business environment in Ireland in 2024, up from 70% in 2023

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86% of SMEs optimistic about business environment in Ireland in 2024, up from 70% in 2023

86% of SMEs optimistic about business environment in Ireland in 2024, up from 70% in 2023
February 02
11:11 2024
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86% of SMEs are optimistic about the business environment in Ireland this year, according to the Melior Funding for Growth Survey 2024, an increase from 70% in last year’s comparable survey. Of these, 74% were ‘quite optimistic’ and 12% were ‘very optimistic’ while 14% were ‘quite pessimistic’ about the outlook.

The survey, which was carried out between 1 December 2023 and 10 January 2024 by the leading Irish private equity firm, includes responses from more than 50 business owners and senior executives across a range of SMEs in sectors including consumer, business services, technology and healthcare.

‘Launching new products’ was identified by 31% of those surveyed as the main driver of their business’ growth while 29% believe ‘selling more to existing customers’ would contribute most significantly to growth. 16% said ‘new sales channels’ would drive business development and 8% agreed ‘acquisitions’ would be a key growth factor. Only 16% stated ‘expanding into new markets / geographies’ would deliver growth in 2024 which is a noticeable reduction from 30% in last year’s survey, possibly indicating the relative strength of the Irish economy compared with some other European markets.

Jonathan Dalton, Managing Director, Melior Equity Partners, said: “We were encouraged to observe such a marked increase in optimism relative to last year’s survey. This bodes well for the Irish economy as we enter 2024. The shift away from international expansion as a growth driver highlights the relative attractiveness of the Irish economy compared with our nearest trading partners.”

Jonathan Dalton, Managing Director of Melior Equity Partners.

When asked about the biggest challenge their business will face this year, 37% identified ‘a reduction in consumer demand’, 29% stated ‘recruitment and retention of staff’, 12% suggested ‘supply chain risks’ would be a key challenge and 12% agreed ‘rising interest rates’. Interestingly, just 10% noted ‘inflation’ as an obstacle to overcome as compared with 33% in last year’s survey.

“Of the options provided, it is interesting that inflation is seen as the least significant challenge this year. This is in stark contrast to last year when it was identified as the most important issue facing business leaders,” said Dalton. “While other significant challenges remain, the perception that inflation is coming under control is clearly positive for SMEs and the wider economy.”

Core constraints to business growth plans identified by respondents included ‘finding the right people to execute the business plan’ (53%), ‘ability to differentiate from the competition’ (17%), capital to fund growth’ (17%), ‘finding the right growth opportunity’ (12%), and ‘the cost or complexity of implementing technology solutions’ (2%).

“Attracting talent remains the biggest constraint to SME growth, with even more respondents identifying it this year as their most significant limitation,” said Dalton. “Private equity investment provides business owners and management teams with additional tools for attracting talent to an organisation.”

When asked what various funding sources they plan to use to fund growth, 69% of business owners surveyed stated ‘cash on the balance sheet’. Significantly, 27% of SMEs suggested ‘equity capital’ would be used for growth funding while 25% were planning to use ‘debt capital’.

“Of the external sources of capital identified, there is a preference for equity capital over debt capital, which is a reversal compared with last year’s survey,” continued Dalton. “This shift may indicate the impact of higher interest rates on the attractiveness of debt funding and a growing appreciation of the availability and benefits of private equity.”

59% of SMEs surveyed have considered taking on an investment partner, in line with 2023. When asked why they have considered this option, 48% identified ‘source of capital to grow’ as a key reason and 44% said ‘ability to de-risk shareholding or create liquidity’. 4% cited ‘having a partner to help drive strategy’ and ‘creating an equity-based management incentive plan’ as reasons for considering an investment partner.

“This year’s survey again shows that a sizeable majority of SMEs have considered taking on an investment partner. The responses show that most business founders now appreciate one of the key selling points of partnering with private equity – the ability to materially de-risk themselves while maintaining considerable upside in the future growth of the company,” continued Dalton.

When asked if they have incorporated AI into their businesses, 45% indicated that they had already done so, with 13% of these indicating that it is ‘fundamental to their plans’ and 32% suggesting that although they have started to use it, they are ‘not yet extensive users’. A further 23% are planning to use it but ‘lack the resources to exploit the opportunity’. 21% have ‘no plans to use AI in 2024’ while just 11% ‘don’t think it is relevant for their business.’

40% of SMEs believe AI will have a positive impact on their business, while 60% believe the impact will be neutral. None of the senior executives surveyed expected the impact of AI to be negative.

“It is notable, for such a new technology, that 45% of SMEs are already using AI in their business. The potential for businesses to create efficiencies from AI is enormous,” concluded Dalton.

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