What will Brexit mean for your business?
Brexit has so far dominated the campaign for the United Kingdom general election which is scheduled for 8 June 2017. The triggering of Article 50 now requires that the UK leave the EU on Friday, 29 March 2019 (subject to the remaining 28 EU members agreeing to extend the leave date).
The Remain campaigners had predicted an immediate economic crisis if the UK voted to leave. House prices would fall, there would be a recession with a big rise in unemployment – and an emergency Budget would be needed to bring in the large cuts in spending that would be necessary.
The pound did slump the day after the referendum – and as the date of writing this article remains around 15% lower against the dollar and 10% down against the euro – but the predictions of immediate doom have not proved accurate. Inflation has risen – to 2.3% in February – its highest rate for three and a half years, but unemployment has continued to fall, to stand at an 11 year low of 4.8%.
In fact the economy has remained buoyant since the referendum result and is estimated to have grown 1.8% in 2016, second only to Germany’s 1.9% among the world’s G7 leading industrialised nations.
However, with the post referendum landscape taking shape, how could your business be affected in a post-Brexit world?
There are many factors impacting your business that Brexit will influence. As no two businesses are the same, the strategy you develop will be unique to your enterprise.
Planning ahead is key to the success of any business, but it becomes even more important, particularly from a financial point of view, when so much uncertainty looms. There are key steps SMEs can take to manage their businesses looking at supply chain, pricing, end user and markets.
If you are required to make payments overseas and if the pound weakens significantly, then any raw materials that need to be imported will become more expensive, and that potentially could reduce profit margins, or make your products too expensive. The fiasco that ensued when Tesco announced it was going to increase the price of Marmite illustrates the sensitivity in the marketplace where price is concerned.
How your business reacts to increased costs will be a major component of its trading future. Contingency planning by building more cash reserves, and ensuring stable cashflow, speaking to investors and looking closely at stock levels are strategies to enable you to minimise risk. An option would be to use currency services via a broker rather than a bank, this will allow significant savings to be made on international money transfers, but also provides the option to fix rates for a period of time. Enabling currency costs to be controlled for up to two years in some cases – can provide for a degree of security for your business.
Exploring relationships with overseas suppliers and even UK customers who are likely to be affected by Brexit seems sensible. Unfortunately, there is very little known about the actual implications of a Brexit which is only adding to the uncertainty. However, speaking to clients and exploring how trade and business could continue to operate, will ensure lines of communication are open to discuss the situation.
It is vital that where possible businesses explore markets further afield. If it becomes harder to trade with EU countries, then small British businesses will have to develop new markets and opportunities and having a diversified client base will be even more important. The Leave campaign had argued that businesses will thrive once they are free from “Brussels red tape” and the UK is permitted to independently forge its own free trade agreements. The vast, growing markets of India and China are high on the list, alongside English speaking countries such as the United States, Canada, Australia and New Zealand.
Fortunately, there is guidance already available for businesses of all shapes, sizes and sectors who are looking to grow their business overseas. The government runs the UKTI (UK trade and Investment) service which provides tailored support and even face-to-face meetings with advisers to help answer any questions that business owners may have.
In due course it will be essential to review and revise contracts in place to take account of the new sovereign laws that will be enacted. You must also ensure that any non-British workers working for you are legally permitted to do so. This is because leaving the EU could mean non-British employees may need to have a visa or work permit to allow them to continue working here.
Finally, it is essential that SME owners review areas where spending can be reduced in the business generally, (eg insurance, card service providers and utility energy bills).
Researching and taking the steps to reduce these expenses (eg switching energy suppliers) will mean an immediate saving for your business.
No one really knows how the Brexit process will work. Unpicking 43 years of treaties and agreements covering thousands of different subjects was never going to be a straightforward task.
The post-Brexit trade deal is likely to be the most complex part of the negotiation because it needs the unanimous approval of more than 30 national and regional parliaments across Europe, some of whom may want to hold referendums.
As the two-year countdown to the UK’s departure from the EU continues, businesses will be constantly refining their plans to identify the consequences of the UK’s exit.
A bumpier economic climate in the short term is to be expected but there is no doubt that the UK financial system and ‘real economy’ will adjust.