We don't know how Brexit will impact the business world in full yet - and we won't until it happens. But there are steps you can take now to prepare your business for the impact of Brexit.
Contingency planning will make it easier for businesses to navigate Brexit’s choppy waters. The UK’s 5.5 million small- and medium-sized enterprises (SMEs) will need to be well prepared for any changes. SMEs represent 99 percent of all companies in the UK and provide vital goods and services essential to the smooth running of the country.1
Challenges and Opportunities
Solid Financials
Sound finances, especially good cashflow management, will be key to weathering the storm. With uncertainty surrounding the future trading arrangements with the remaining 27 EU countries, a strong cash position will give companies the legroom to respond to any sudden crises.
Under such a scenario, companies may face higher administrative costs as they adapt to new regulations, and more fees as the EU free-trade arrangements come to an end.
New Tariffs
Companies that trade goods directly with EU countries may have to begin treating their shipments as imports and exports in the same way they work when trading with non-EU countries. This may lead to more paperwork covering things like customs and excise documentation as well as safety and security.
VAT Changes
Fortunately, the impact of another charge that could be imposed under a no deal Brexit, has been cushioned by the government. At the moment, VAT payments on imports from the EU can be deferred while those on shipments from outside the EU must be paid upfront. A no-deal Brexit could require importers to pay immediate VAT on their EU-sourced goods. This could cause problems for small businesses. For that reason, the government has permitted importers to postpone these VAT payments. This has been extended to companies that buy goods from non-EU countries as an incentive to encourage trading ties beyond Europe.
This isn’t expected to be a permanent policy – it’s slated to end when the Brexit transition period ends (which is currently scheduled for 31 December 2020). Plan ahead - use the postponement time to prepare for a time when VAT is charged.
Currency Volatility
Brexit has already brought some currency volatility, and while two-thirds of companies surveyed by the Federation of Small Businesses said they’re worried that Brexit will hurt their activities, at least a tenth of them see opportunity. For exporters, the drop in the value of the pound since the referendum has provided some optimism, making purchases of UK-made goods overseas much cheaper. Exporting manufacturers are yet to fully capitalise on this, but if the pound remains weak, they’ll be in a better position to sell more products overseas and explore new markets.
On the other side, a weaker pound makes imports more expensive. But even that can offer an opportunity for businesses to find local suppliers.
Business Leaders' Outlook on Brexit
Each year, we partner with Oxford Economics to explore the outlook of SMEs. Globally, Brexit is not a concern for most business with only 22% of UK respondents having reported Brexit disrupting trade as their top external threat to their business. And it doesn't appear to have impacted how UK business leaders are feeling about the global economy with 63% positive about the state of the global economy.2
Top Tips
Sound finances will be key to ensuring small businesses can prosper through Brexit and a key part of that is good cashflow management. Preserving or increasing access to capital will help firms absorb some of the impact.
The Chartered Institute of Credit Management (CICM) offers a 10-point guide to cash management offering advice to businesses to monitor invoicing, payments and budgets to secure what money they do have or is owed. And for companies that don’t have lots of emergency funds, existing credit lines can be extended and new lines opened.
If larger investments are needed, the UK government runs a similar programme to the EIF, the British Business Bank. Additionally, companies can look to private credit providers that manage a growing number of investment funds targeted at small businesses and start-ups.
Export managers can save money by shopping around for more competitive overseas payment services.
1. https://www.avalara.com/vatlive/en/index.html
2. In October and November 2018, Oxford Economics surveyed senior executives at 3,000 SMEs, ranging in size from 10 to 250 employees across 12 countries and 16 industries. Telephone interviews were used to explore opportunities and threats, business prospects, strategies, investments, and how SMEs could be better supported by changes to regulation, financing, and government support.