How to operate and raise capital for small and medium enterprises in Europe in 2023

Eud International Foundation C.I.C. and Small and medium enterprises (SMEs)

Small and medium enterprises (SMEs) are the backbone of Europe's economy. They represent 99% of all businesses in the EU, employ around 100 million people, account for more than half of Europe’s GDP and play a key role in adding value in every sector of the economy². They also bring innovative solutions to challenges like climate change, resource efficiency and social cohesion and help spread this innovation throughout Europe’s regions.

However, SMEs also face many challenges and concerns, especially in the context of the COVID-19 pandemic and its aftermath. Some of these challenges include:

Access to finance to raise capital:

SMEs often struggle to obtain sufficient and affordable financing for their activities, especially for innovation and growth. The pandemic has exacerbated this problem, as many SMEs have faced liquidity shortages, reduced revenues and increased costs. The EU has provided various measures to support SME financing, such as guarantees, loans, grants and equity instruments¹², but more needs to be done to ensure that SMEs can access the funds they need in a timely and efficient manner.

Access to markets

SMEs need to be able to reach new customers and markets, both within the EU and beyond. Internationalization is important for all companies, large and small, as it can increase their competitiveness, productivity and profitability. However, SMEs often face barriers to enter foreign markets, such as regulatory differences, trade barriers, cultural differences and lack of information³. The EU has taken steps to facilitate SME internationalization, such as promoting trade agreements, providing information and advice through the Enterprise Europe Network (EEN), and supporting cross-border e-commerce², but more efforts are needed to help SMEs overcome the obstacles they encounter.

Digitalisation:

Digital technologies offer huge opportunities for SMEs to improve their processes, products and services, as well as to reach new customers and markets. However, many SMEs lack the skills, resources or awareness to fully exploit the potential of digitalisation. The pandemic has highlighted the importance of digitalisation for business continuity and resilience, but also the digital divide between SMEs that have adapted quickly and those that have lagged behind¹². The EU has launched several initiatives to support SME digitalisation, such as the Digital Europe Programme (DEP), the Digital Innovation Hubs (DIHs) and the European Digital Innovation Challenge (EDIC)², but more actions are needed to ensure that all SMEs can benefit from the digital transition.

Sustainability:

SMEs have a key role to play in achieving the EU's green and social goals, such as reducing greenhouse gas emissions, improving resource efficiency and promoting social inclusion. However, many SMEs face difficulties in implementing sustainability practices, such as measuring their environmental impact, accessing green finance or complying with environmental regulations¹². The EU has developed several measures to support SME sustainability, such as the European Green Deal (EGD), the Sustainable Finance Action Plan (SFAP) and the European Social Fund Plus (ESF+)², but more incentives are needed to encourage SMEs to adopt sustainable business models.

To overcome these challenges and concerns, SMEs need to adopt a proactive and strategic approach to their operation and capital raising. Some of the best practices that SMEs can follow are:

Plan ahead:

SMEs should have a clear vision of their goals, strengths and weaknesses, as well as their opportunities and threats in the market. They should also have a realistic business plan that outlines their financial needs, sources of funding and expected returns. Having a sound business plan can help SMEs attract investors, lenders and customers, as well as manage their risks and contingencies.

Diversify:

SMEs should not rely on a single source of funding or a single market for their activities. They should explore different types of financing options available for them, such as debt, equity, asset-based finance or crowdfunding¹. They should also seek new customers and markets both within the EU and outside it³. Diversifying can help SMEs reduce their dependence on external factors, increase their resilience and enhance their growth potential.

Innovate:

SMEs should constantly look for ways to improve their processes, products and services using digital technologies¹. They should also seek new opportunities for innovation by collaborating with other actors in their ecosystem, such as universities, research centers or other businesses². Innovating can help SMEs increase their competitiveness, productivity and profitability, as well as create value for society.

Go green:

SMEs should adopt sustainability practices that align with their core values and objectives¹. They should also communicate their sustainability performance to their stakeholders using reliable data and reporting standards. Going green can help SMEs reduce their costs, improve their reputation and access new markets.