CLOCK TICKING ON LIQUIDITY GAP

How stretched are Ireland’s SMEs? There were c.70,000 businesses availing of the TWSS during the summer on the basis that their turnover has

25% declined by at least year-on-year. The scheme has been of huge benefit to small and medium-sized employers, who are also benefiting from a waiver of their 2020 commercial rates liability, as well as Restart Grants from €4,000 to €25,000.

After canvassing c.550 members in June, business lobby group Ibec

80% found that over have seen a hit to their profitability in 2020. Twothirds of those companies have suffered substantial losses.

For three out of four SME members, the minimum period in which they expect ‘normal’ demand to return is greater than their cash reserves. In other words, they have a ‘liquidity gap’ which will need to be bridged by external funding.

In sectors most challenged by Covid-19, such as tourism and hospitality, Ibec believes most SMEs

80% require of pre-Covid-19 demand to break even. Yet social-distancing measures means that many SMEs now have to operate well below capacity. As a result, those in consumer-facing sectors may remain loss-making through to 2021. Ibec’s cashflow modelling shows

80% that even if demand recovers to of pre-Covid-19 levels by November 2020, the average SME in consumerfacing sectors will have fixed cost debts amounting to €45,000.

This increased leverage is equivalent to almost 80 weeks of

40% average net profit. Circa of this debt is owed to the Revenue and

27% local authorities; is owed to the firm’s commercial landlord; and the remainder is split between utilities, insurance and loan repayment, and suppliers. In total, debt and taxes could take 68c in every euro an SME earns over the next three years, according to the Ibec modelling. Even with significant government support, the total cost of Covid-19-related

20% debt would reduce profits by for a period of three to six years.