Now is not the time to panic as Brexit looms
Jonathan Oxley, Northern Powerhouse Ambassador and former regional chairman, Institute of Directors
As a regional representative for the IoD I often ask our members what they want from the Brexit process. The answer usually involves the word “certainty”. That makes sense because if businesses know what is going to happen they can plan accordingly.
Unfortunately, the one thing our politicians have been unable to deliver is any degree of certainty. Time continues to tick by and we are no closer to knowing what our future relationship with the European Union (or indeed the rest of the world) will be - although judging by the outbreak of the Scallop War, our relationship with the French seems to be trending back to its historical norm. Let’s hope President Macron is more of a moules man when it comes to starters.
We are also faced with a situation where, just as we want to engage with the rest of the world, the American President seems entirely unconcerned at the prospect of a global trade war.
Faced with all this uncertainty, what are businesses supposed to do? Moving to Amsterdam is one option for some, but not for many. One business leader recently told me how he survived the 2007/8 financial crisis. He said: “I panicked”. The result of that panic was early and deep cost cutting, which saved the business.
I am not recommending panic, indeed quite the reverse. It seems to me that the coming months are a good time to keep calm and continue making the most of what have been good trading conditions for a lot of businesses.
My bet is that pragmatism will prevail and sensible arrangements will be agreed with the EU. However, you can’t rule out the possibility that, because the subject is so politically acrimonious, our politicians will decide that a punch up with each other is more gratifying than looking after the interests of the country as a whole. To be fair that aspect of human behaviour isn’t just typical of politicians. I have seen the same thing in businesses.
So I think we can still hope for the best, but we do need to prepare for the worst. Most of us will do budgeting with sensitivities in the top line. These will show the impact of sales falling by, say, five per cent which (unless you have a small number of large customers) might be as bad a turn of events as you might ordinarily expect.
Perhaps it’s time to prepare a plan to deal with a worse outcome than that. Think of it as an insurance policy, put away safely in case it’s needed. Like most insurance policies it probably won’t ever come back out of the drawer.
Many businesses are a lot stronger than they were at the time of the financial crisis. They don’t carry as much debt. This is partly because of the very different lending environment and partly because of the lessons learned. Indeed, many businesses are sitting on substantial cash reserves.
But trading businesses are not savings institutions. Their job is to put capital to work, not to sit on it. In times of uncertainty, those companies that have the courage to keep investing strategically in building their business could well steal a march on competitors who don’t.
Given the rapid pace of change in many sectors those businesses that keep investing, growing and changing may well be those who are much more likely survive, however stable or unstable the future may be.