In recent years, investment funds mainly with Greek capital have been established in Greece, the main purpose of which is to invest in small and medium-sized Greek manufacturing enterprises (SMEs). They manage funds of about 1 billion euros with the aim of highlighting the productive potential of Greek SMEs.

At the same time, production conditions around the world are rapidly changing under the influence of the new digital age, the disruption of the international supply chain, the increasing degree of industry concentration, the transition to green, sustainable growth and ESG policies. Under these conditions, operational and business transformation becomes a necessary condition for the survival of companies, which requires significant funds and consistent reform on the part of their shareholders.

In the next two or three years, the international economic environment does not appear to be particularly favorable. Political and economic uncertainty, higher interest rates and inflation, high energy and raw material costs, the removal of fiscal support measures related to the pandemic and the Russian-Ukrainian crisis, lower economic growth, dysfunctional international supply chains and receding globalization prevail.

Conditions in Greece, despite delaying major reforms, are more positive, especially in terms of GDP growth, bank liquidity, government policies to attract foreign investment, the use of the Development Fund, budgetary needs for the next decade, and the possibility of recovering investment levels.

But there are certain difficulties for Greek SMEs. The size of the Greek market is relatively small, the population is declining, labor shortages are increasing and production costs are rising.

Greek SMEs are relatively small in size (average turnover <10 million euros), on average the smallest in the Eurozone, they find it difficult to attract foreign institutional capital, they usually have limited equity capital, mainly due to their family nature, they find it difficult to obtain financing, while they face serious difficulties in successfully "setting up" export activities. In addition, the degree of concentration in almost all sectors of the Greek economy is increasing, and the penetration of foreign institutional and business capital is expanding (for example, tourism, medicine, health, food, energy, telecommunications), in recent years, developments that make it difficult for SMEs to compete.

Obviously, there are small and medium-sized enterprises that are prudent, planning and seriously preparing for new market challenges, using all alternative opportunities and financial and technological solutions. Basically, shareholders invest in their business in combination with government support programs and bank loans, demonstrating in practice their confidence in the potential and future of their business.

But a significant number of Greek small and medium-sized enterprises have significantly delayed the implementation of the necessary corporate transformation, are unwilling to invest in the future, risking a slow decline.

The lack of critical decision making is a serious risk for the future of small and medium enterprises.

In this choice of shareholders, a number of deterrent factors have a decisive influence: force of habit, fear of the new, unreliable balance sheets and performance, abundant government assistance, tax evasion and fees that sometimes act as informal finance, undeclared turnover (for example, ” black”) and illegal work, slow response of creditors to corporate over-leveraging and insufficient equity capital, family disputes between shareholders, lack of know-how, shortage of equity capital, shareholder wariness towards institutional investment funds, shareholder confidence that the value of their business well above the market valuation and, finally, the denial of reality. This strategic backwardness will sooner or later force them to make decisions not from a position of strength, but from a sharply limited negotiating capacity and range of possibilities.

I will dwell in more detail on a serious problem that a potential institutional investor in SMEs is facing today, the relatively low degree of reliability of the company’s published financial statements, which raises doubts about its real financial position.

As an example, I would like to note that part of the income and operating expenses is not reflected in the balance sheet and performance results (“black”), the remarks of sworn auditors on the formation of a larger amount of reserves against incurred and final losses or liabilities are not reflected in the balance sheet, since the current legislation on does not impose them, the value of real estate, production facilities, interests and intangible assets is often overstated, the value of shares on the company’s balance sheet is “overstated” in some cases, accounting records sometimes reflect entries, withdrawals or loans to shareholders, which usually relate to cash advances from the company to shareholders , for “unknown” use, without cover and repayment plan, the requirements to be collected in several cases seem large in relation to the commercial cycle of the company, the percentage of which is not a collection and is not accompanied by m in the formation of the necessary reserves in a number of cases equity, and also adjusted equity capital are negative, without passing through the mandatory capital increase procedure prescribed by law with the necessary speed.

But there are other disturbing findings as well. The boards of directors of small and medium-sized enterprises are made up of relatives and friends, they usually do not meet for life, there is no internal control, there is no clear organizational and management structure, there is no annual budget, there are no regulations on activities and procurement, international accounting standards are not followed, they apply ESG principles and environmental policies, they have recurring and undeclared staff, there are also unrecorded incomes, they have not been tax audited for many years, bank lending is mainly based on real collateral and personal guarantees of shareholders, and SME operations with associated related companies or personal expenses that raise questions about transparency in the organization.

A clear increase in the reliability of the published financial data of each company is a necessary condition for attracting investment interest. Legislative and regulatory changes are required from the state and lending institutions, but above all changes in the mentality, perception and behavior of the SME shareholders themselves. They should seriously improve internal and external audit, tighten accounting rules with the widespread implementation of international accounting standards IFRS, expand the responsibilities of private auditors and audit organizations, modernize corporate governance rules and strengthen integration into bank corporate financing rules, tighten the criteria for assessing the balance sheet, sufficiency equity and the quality of corporate governance of the funded company. It would also be in the right direction to accelerate the consolidation of hundreds of troubled small and medium-sized enterprises that are still stagnant in the market after ten years of crisis, use incentives for mergers and acquisitions of companies, introduce a timely increase in the authorized capital by the state in relation to companies that do not meet the conditions activities, and gradually make it mandatory to use only electronic means of payment in a wider range of business transactions. The goal is to create stronger and healthier corporate structures with a strong extroverted orientation. However, the biggest change is that the SME shareholders themselves realize that the new era requires significant corporate transformations, which, however, require corporate size, capital and know-how.

In a few years, paper money will become a museum piece, and all market transactions will have a serious electronic footprint. A business model whose profitability depends on undeclared turnover, illegal work, government bailouts, non-transparent government jobs, tax evasion, financial misrepresentation, and creditor tolerance for over-indebtedness is closing its circle, its resilience. The lack of critical decision making is a serious risk for the future of small and medium enterprises. The challenge is too immediate and threatening to ignore.

Mr. Nikos Karamouzis is President of SMEremediumCap & Grant Thornton, Greece.