Rising expenses, staff costs and global uncertainty weigh on outlook as majority of Irish SMEs turn more cautious.
Irish small and medium-sized businesses are facing a more fragile outlook as rising costs and weaker profitability continue to put pressure on firms
The latest SME Business Sentiment Survey from Chartered Accountants Ireland and GRID Finance, shows that 71% of SMEs are now more pessimistic about the economic environment than they were six months ago. That marks a notable increase from 54% recorded in October 2025 and reflects a broad shift in sentiment across the sector.
“SMEs are being squeezed from all sides, by rising wages needed to retain staff, persistent increases in day-to-day operating costs and growing energy and regulatory pressures, making it harder to maintain margins and retain staff”
The findings come as cost pressures intensify across the economy. A total of 84% of businesses reported an increase in operating costs, with staff expenses and day-to-day overheads emerging as the most significant drivers.
Profitability has also softened. Just 25% of SMEs said their profitability had increased over the past six months, down from 32% in the previous survey, underlining the strain on margins.
Staff costs remain a central concern, with 38% of respondents identifying them as their biggest financial challenge. More than half, 54%, said rising costs are now the primary factor affecting their competitiveness.
Pressures become embedded
Cróna Clohisey, Director of Members and Advocacy at Chartered Accountants Ireland, said the data reflects sustained and deepening pressure on businesses.
“These findings point to a worrying trend for SMEs, with cost pressures intensifying and profitability declining compared to six months ago,” she said. “SMEs are being squeezed from all sides, by rising wages needed to retain staff, persistent increases in day-to-day operating costs and growing energy and regulatory pressures, making it harder to maintain margins and retain staff.”
She added that many of these pressures are no longer short term in nature but are becoming embedded in how businesses operate.
“They are eroding margins, weakening competitiveness and contributing to a more cautious business outlook. More businesses now expect to be worse off than better off in the months ahead,” Clohisey said.
Geopolitical uncertainty is also shaping sentiment. Nearly half of respondents, 48%, identified global instability and its impact on costs and supply chains as the biggest challenge for the coming year.
Energy remains another significant concern. One in three SMEs said energy costs and security have the greatest impact on their operations when it comes to infrastructure, highlighting the continued exposure of businesses to volatility in energy markets.
The survey also points to a disconnect between policy supports and business uptake. While 47% of SMEs said they need assistance with energy costs, fewer than one in ten have applied for such supports. Half of those surveyed believe current supports are not effective.
“There is clear evidence that existing government supports are not reaching businesses effectively,” Clohisey said. “Making these supports more accessible and more effective must now be a priority.”
Regulation continues to rank high on the list of concerns. A majority of SMEs, 54%, said reducing the regulatory and compliance burden should be the top area for government action, ahead of tax relief or access to finance.
This issue is also expected to feature during Ireland’s upcoming Presidency of the Council of the European Union, with 40% of businesses calling for simpler EU regulatory requirements.
Budget 2027
On the domestic front, SMEs are also beginning to outline their expectations for Budget 2027. More than a quarter, 28%, said indexing income tax credits and bands is their top priority, reflecting concerns around take-home pay and cost of living pressures.
“We’re hearing directly from businesses about the impact of rising living costs on both owners and employees,” Clohisey said. “It is becoming harder to retain staff and plan ahead, and easing the pressure on household income is part of that challenge.”
Despite the decline in confidence and profitability, businesses are continuing to invest or manage cash flow needs even as conditions tighten.
Eoin Christian, CEO of GRID Finance, said the findings underline the resilience of SMEs while also highlighting the scale of the challenges ahead.
“This survey sheds light on the key challenges businesses are facing, including rising costs and geopolitical uncertainty,” he said. “Despite these pressures and the downturn in profitability, it is notable that demand for borrowing remains largely unchanged. That indicates businesses are still seeking ways to navigate the current environment.”
He said access to appropriate funding and support will be critical in helping SMEs manage through the coming period.
“SMEs continue to adapt, but they need the right supports in place to help them through what remains a challenging economic landscape,” Christian said.
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