The secretary general of the Department of Finance says the Irish economy needs to see more “births and deaths” among companies as a sign of a more entrepreneurial society.
John Moran told the annual lunch of SME group ISME that “we tend to hang onto companies for too long”, rather than letting them die and be reborn, or merged with others to form bigger, better capitalised entities.
He told ISME members that he was shocked at how few small businesses were doing cash flow analysis.
He said shortly after taking over at the Department of Finance, he went on a road-show around the country to meet small businesses and found it shocking how few understood their own cash flow.
Mr Moran said this – and poor presentation of business plans to banks - showed the need for better business education among entrepreneurs.
He said he found it deeply frustrating that so few people knew about the level and range of Government supports to small business – amounting to some €2 billion – and said Government has to do a much better job of communicating this information.
Earlier this month the Department of Finance set up an interactive website to help SMEs through the funding maze.
Mr Moran said the Department of Finance was currently working on an overhaul of the way the taxation system treats entrepreneurship.
This started last year with what he called a “significant change to capital gains relief” for people who re-invest in businesses.
He said the current focus was on the successor regime to the Business Expansion Scheme, but he said that raised fundamental questions about the way business is taxed and whether such a system is “supposed to spread losses around to everyone else or provide a just reward for people who gain or suffer loss when they invest in companies”.
Mr Moran was particularly critical of the large number of small businesses that do not engage in online commerce. He said 70% of online sales made in Ireland were with companies based abroad.
At a macro level, he said this failure of Irish SMEs to engage in e-commerce would result in more imports coming in, more money leaving the country, fewer exports and indigenous companies not reaching their potential.
He said a recent pilot programme in Dublin showed that 55% of the companies that took part increased trade during pilot. 30% of them started export sales for first time and 30% of participating firms decided to make significant capital investment to equip themselves for online operations.
Mr Moran urged companies that are having difficulties with bank credit to use the Credit Review Office, because that is the only way the Department of Finance will get proper information about problems with bank lending, and without proper information the department can do little to ensure the banks are lending correctly.
He said business in other countries use their equivalent of the Credit Review Office much more than their Irish counterparts do.