Supporting mSME companies through “Early Warning” supports as they emerge from lockdown.

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Supporting mSME companies through “Early Warning” supports as they emerge from lockdown.

  • Posted by: Tom Murray
  • Category: Business

I was delighted to participate earlier this month as a guest panellist for Early Warning Europe on a debate on “the role of the accountant in Early Warning”

 By way of background, in 2016, 15 organizations from seven European Member States formed a partnership to develop Early Warning Europe as a project organization under the call “European Network for Early Warning and for Support to Enterprises and Second Starter” under the EU COSME program. 

 The call was an integral part of the European Commission’s efforts to improve framework conditions for SMEs and entrepreneurs across Europe.

 The overall objective of Early Warning Europe is to promote entrepreneurship and growth of SMEs across Europe. A key element is to create strong framework conditions for entrepreneurs and businesses across sectors that can help them face key challenges, including managing a crisis, dealing with bankruptcy and getting a second chance.

Such interventions can help prevent corporate insolvencies and the negative consequences such as job losses, increased economic risk for suppliers in the company value chain, and a potential economic, social and personal distress for the company owners and their families.

 The topic of the debate I participated in, was on why the role of accountants in Early Warning is important given that accountants have the skill set and tools for seeing financial and structural problems in businesses as they appear, and as such can make a difference for companies by anticipating difficulties and help them avoid a potential crisis.

 At the same time, many European countries are pondering how to put this knowledge into use, whilst acknowledging it has to be done the right way to work in practice, and nobody has any interest in putting an extra financial burden on SMEs or accountants in these times.

As an experienced insolvency practitioner, my core fundamental beliefs are 

1.     any business that can be rescued should be rescued before they have to resort to formal insolvency proceedings.

2.     The earlier company’s start the turnaround process – the more the time they have to explore the options – the better chance they have of succeeding.

 So, I am a firm believer in developing and promoting Early Warning for businesses and in particular micro and SME business who do not have the broad skill sets to understand or indeed make the required decisions.

 I also think that the Accountancy Profession has an important role to play in this believing as I do that Accountants in practice currently do this on an informal basis for their clients. However, often they only refer their clients to an Insolvency Practitioner or business turnaround professional when it is too late.

This is not necessarily the fault of the Accountant but often it is because 

a.     they only see the client when previous years accounts are being finalised so the information available is historical

b.     The cost of a review or implementation of a plan is seen as prohibitive

c.     in many cases the client is in denial and it is often easier to bury their heads in the sand that admit that their family’s livelihood is at risk

 Another issue for me is when a mSME can anticipate a crisis where or who can they turn to for support.

I am certain based on my many years of experience that an early warning system, no matter how sophisticated, can only be as successful as the wider supports for business around it.

It is said the SME’s are the backbone of the economy in Ireland. It’s true when you consider that 99.8% of enterprises and 70.9% of employees are in the mSME business category.

 However, Government funding (pre pandemic) represented less than 1% of total SME finance with our small businesses having an unhealthy reliance on bank debt and finance. This is because the supports are too difficult to understand, too difficult to obtain and perhaps too narrowly applied.

IF the EU and individual member states governments are serious about support and preventing insolvency amongst SME’s through Early Warning or an alternative system – they need to

 a.     make it easier for mSME’s to access professional advice and

b.     make it easier to get access to finance other than bank debt in an easily accessible manner that is not overly complex or burdensome.

 This is particularly important as businesses emerge from lockdown and need to fund a return to operating at a greater capacity than they have over the past 12 months.  Reserves may be eroded and sourcing and funding the necessary working capital could be difficult whilst at the same time not falling into the trap of overtrading.

To this end as part of any EW system, in my view mSME’s should have the opportunity through a funded voucher system to seek support from a licensed EW or IP through an SME support agency. We have seen how successfully this works in Ireland through the Personal Insolvency system with MABS providing vouchers to clients to commence Personal Insolvency Arrangements.

An experienced EW practitioner or IP can assist a business scale up and mange a return to capacity in measured way so as to avoid them walking unnecessarily into an insolvency event.

Author: Tom Murray