‘Serious problems’ faced by SMEs after failure to prepare for transition

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Series Details Vol 7, No.2, 11.1.01, p12
Publication Date 11/01/2001
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Date: 11/01/01

THE biggest headache for euro-transition pilots is the ill-preparedness of small and medium-sized enterprises.

The euro zone's 15 million SMEs have continued to do business in their national currencies as though the euro launch never happened two years ago this month.

Politicians are alarmed. "SMEs have everything to gain by preparing rapidly for the euro; those which are ready before their competitors will be able to take advantage of the possibilities offered by a vast European market free of exchange rate risks," said Economics Commissioner Pedro Solbes.

A recent poll from the French Banking Association (AFB) found that only 5.5% of companies with fewer than ten wage-earners are ready for the euro, while zone-wide surveys suggest that as many as 7 million businesses intend to do nothing until 1 January 2002, when the notes and coins appear.

Unless the situation changes rapidly, many businesses will "face serious problems" at the beginning of next year, warned French Finance Minister Laurent Fabius last week during a visit to Labmetrix Technologies, a showpiece SME near Paris that has been using the euro since it came into existence in 1999.

Fabius claimed that a smooth transition from franc to euro would take the average French SME "several weeks" and firms would need time to test their new accounting systems. His ministry is leaning on SME associations to persuade their members to make the switch during the first three months of this year.

To be fully prepared, businesses will have to adapt their pricing policies and accounting systems, train staff and inform clients and suppliers - especially those outside the euro area. Most will also have to invest in euro-compatible accounting and invoicing software.

In Germany, the costs of transition for each SME are estimated at up to €20,000, with the bulk coming from replacing cash-handling equipment, staff training, updating computer systems and hiring information-technology consultants.

Yet, 30% of euro-zone SMEs think it is not yet time to prepare and 48% say they have an action plan but have yet to put it into effect.

"What small businesses often fail to understand is that Y2K compliance was a question of checking software, while being EMU-compliant is an issue for every aspect of a business; no matter its size," wrote Kathryn Sheridan in a study for the BusinessEurope website.

The European Commission has warned small businesses that the longer they leave their switchover, the more likely it is they will be ripped off by 'fire-fighting' consultants parachuted in at the last minute to deal with problems which could have been solved earlier.

As an example to the sector, the Commission together with the Association for the Monetary Union of Europe, the Federation of European Accountants and hardware-maker IBM in November handed out prizes for well-prepared SMEs. But even one of the five winners, Italian printing company Newmec, complained that preparations could only go so far. "Leaving ten countries out of our accounting was something we leapt on with interest," said Susanna Spirolazzi, Newmec's chairwoman. However, with most suppliers and customers still dealing in national currency, Newmec still had to do business in the 'legacy' currencies. "The transition period is too long," she said.

Even in the UK, which is highly unlikely to take part in the process unless a quickfire euro-zone membership referendum is held shortly after a spring election, small businesses are already sweating bullets over the prospect of the transition.

The Bank of England has found that while the euro is increasingly used in the UK with 6% of all businesses holding euro-denominated accounts, take-up among SMEs is just 2%.

"There is a consensus among those from whom we have received evidence that SMEs would pay a disproportionate amount in converting to the euro," claimed a report entitled What would the euro cost UK business? published by the House of Commons trade and industry committee.

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