The survey, which attracted a response from over 600 companies, confirms that there has been no improvement in the second quarter and the indicators are that the next twelve months will continue to be extremely challenging, with companies further re-adjusting downwards their employment and investment levels.

Business Confidence

The survey’s findings show that business confidence, while still negative overall, has improved since the previous quarter with a net 56% of companies less optimistic in comparison to a net 71% in the previous quarter.

The most negative sector is construction with a net 73% less optimistic, followed by retail at 71%, distribution (70%), manufacturing (51%) and services at 48%.

74% of companies, up from 69% in the previous quarter, viewed the current business environment as being either ‘poor’ or ‘very poor’.

23% expect business conditions to improve over the next twelve months, up from 16% in the previous quarter.

Worryingly, two thirds of businesses (66%) outlined that the viability of their businesses was under threat over the next twelve months, if present conditions remain.

The survey also shows that the Irish labour environment continues to be extremely depressed with nearly two thirds (62%) of companies employing less than this time last year and only 6% employing more. These figures are the worst ever recorded and confirm that there has been no slowing down in job losses in the sector, with evidence suggesting that this trend is to continue over the next number of months, according to the report

Employment

The construction sector was worst affected with 83% of companies letting people go in comparison to 72% in the distribution sector, 61% in retail and manufacturing, and 43% in services.

Employment prospects remain bleak with 43% of companies anticipating letting people go over the next twelve months, with only 7% planning to increase employment numbers. Distribution companies are the most pessimistic with a net 52% in comparison to 40% in the construction sector, 35% in retail, 32% in manufacturing and 28% in services.

Sales / Profit and Stock

Sales continue to fall off a cliff with a net 77% of companies reporting lower sales in comparison to a net 72% in the previous survey. To put this in context there has been an eight-fold increase in the number of companies reporting reduced sales in comparison to the same period last year. Only 23% of companies expect to increase sales over the next twelve months.

Not surprisingly profit levels are badly affected with a massive 73% of companies anticipating a reduction in net profits, while 61% expect revenues to decline over the next twelve months, down from 69% in the previous quarter.

Following on from the reduction in sales, a massive 81% of companies outlined that their sales/order books are down in comparison to last year.

33% of companies reported that their stock levels are down for the year, in comparison to 24% in the previous quarter.

26% of companies have orders, production capacity and markets unserviced for want of working capital. This highlights the difficulty that companies are having in accessing credit facilities from their banks.

A significant 54% of companies have encountered cancellation of orders in the last quarter. Cancellations were from:

• Locally Based Multinationals 16%
• Export Destinations 7%
• Local Indigenous Firms 77%

The fact that over three quarters (77%) of cancellations are from indigenous businesses is extremely worrying, according to ISME, and confirms the dramatic slowdown in the sector over the last number of months, says the report.

Investment

SMEs continue to reduce the level of investment in their businesses with 32% having done so in comparison to 30% in the previous quarter. 19% indicated they increased investment, down from 25% in the previous three months.

Only 16% of companies anticipate an increase in investment over the next twelve months.

Credit

Smaller businesses continue to experience serious delays in late payments, with the average waiting period now 73 days, up from 68 days in the previous quarter. The trends survey confirms that compared to twelve months ago 57% of respondents outlined that the credit period being taken is longer, with only 6% stating that they get paid faster. A significant 45% of companies have to wait over 90 days or more to be paid. Difficulties in getting paid are not helped by the unwillingness of the government to implement and monitor adequate legislation that would protect smaller businesses, noted ISME.

Exports

The export performance of Irish SMEs, while showing an improvement on the previous quarter, still remains an area of concern, in the view of ISME. For instance a net 33% of companies reported that the value of their exports was down on the same period last year, in comparison to a net 43% in the previous quarter. This however is still down 32% on the corresponding survey twelve months ago. The impact of a downturn in the world economies, especially the UK, continues to be problematic, warns ISME.

Inflationary Pressures

Firms continue to experience inflationary pressures, with increases of 5% plus being reported for transport, energy, raw materials, Insurance and waste. However, there is evidence of reductions in wage costs and rents, says ISME.

Business Concerns

Finally, 47% of companies apportion blame to the Government for the current economic crisis, with a significant number of SMEs concerned at the lack of direction being provided. 31% blamed the financial institutions for the crisis.

According to ISME Head of Research, Jim Curran, “The latest survey figures confirm that even though smaller businesses are more optimistic there is little evidence of green shoots in the sector. In fact the second quarter has proven to be more difficult than the first quarter with a noticeable deterioration in sales, employment and investment”.

“The evidence suggests that small businesses continue to downsize, with companies planning to reduce employment numbers and investment levels over the next number of months. Among the primary concerns are the level of economic uncertainty and the lack of available credit, which continues to hamstring companies. It is not surprising therefore, that small business owners hold the government and financial institutions mainly responsible for the current economic crisis.”

“On a slightly positive note there are indications that export values, which were decimated in the previous quarter, have improved, albeit from historically low levels. There is also clear evidence that wage rates and rents are reducing, which should assist in long-term competitiveness. However, businesses continue to be impacted by rising costs in other areas including local charges, transport and Insurance.”

“Rebuilding confidence is key to ensuring that SMEs are able to survive and, ultimately, as the economy recovers, begin to grow again. This requires the introduction of workable policies to create the proper platform and the right conditions for SMEs to prosper. The government needs to take its head out of the sand and implement short and longer-term strategies to help bolster cash flow, remove costly barriers to growth, protect employment and stimulate business,” Curran continued.

Among the policies that the Association would like to see immediately introduced, include:

• A dramatic increase in funding of the Enterprise Stabilisation Fund, which is already running dry.
• The introduction of a Government guarantee scheme, similar to that introduced in the UK, to free up badly needed bank credit.
• The immediate introduction of initiatives to maintain employment, including PRSI reductions and employment subsidies.
• The reconvening of the Small Business Forum to address the issues of concern to the sector and implement the appropriate policies to assist in SME survival and growth.