This is the third of our three-part series advising UK SMEs how best to prepare their organisations for whatever the post-Brexit landscape holds. In this final instalment, we suggest the five key things that you should be considering…
Brexit chills? Wear a SCARF
At the time of writing we are a little under six months away from the end of the Article 50 period on March 2019 and, as we head into winter and the nights start to draw in and temperatures start to dip, a lot of the decisions – and all the parliamentary votes - on Brexit still need to take place.
Business planning, especially contingencies to protect business operations against something as all-encompassing as Brexit, take time to finesse. Hastily enforced plans tend to be ill-fitting ones and not fit for purpose.
With that in mind we are outlining our plan of five things that need to be considered by UK SMEs that trade internationally; a “SCARF” to wear in protection against the ill-winds of Brexit, that will offer warmth through the winter months of 2018.
Set Budget Rates
Even if the Brexit debate had been settled in June 2016 with an overwhelming vote for the ‘Remain’ side, currency risk would still be an issue for international businesses to get their heads around. Regardless of what happens between now and 29 March, the pound will be the most likely market barometer of whether the deal is ‘good’ or ‘bad’. In the no-man’s land that sterling finds itself in at the moment – neither with a deal, nor without – you can’t meaningfully say whether sterling will be higher or lower come the end of March.
You can have a view, but hope is not a hedge and as anyone who has been watching the Brexit negotiations closely will know, that hope can often give way to reality to circumstance.
Set a budget rate on the currency crosses that affect your business that guarantee that currency will not impinge on your profitability.
Certainty of Terms
Brexit is a game of borders and the rules that govern who and what can cross them how and when. Politicians of every stripe have been careful to acknowledge the implicit difficulty in cutting the Gordian knot of the UK’s relationship with the European Union but while news headlines have been happy to announce that an agreement is 95% done, for most small businesses they are still back at square one.
Conversations with suppliers and customers that may have been predicated on hope and expectation need to be now based on “What If?” Preferential payment terms, discounts on longer-term purchases and same-currency payments are all being talked about by SMEs as near-term buffers to the uncertainty that Brexit poses to international trade.
Access to Markets
Logistics is not glamorous but Brexit and its impact has made haulage and shipping reliance as fashionable and buzzwordy as blockchain and bitcoin. While the world of logistics is still waiting on the rules and regulations of what they will be able to do in a meaningful timeframe from 29 March, now is the time to be putting in place back-up plans with European and Global conveyors so your supply chains remain flexible.
We have seen many surveys that suggest businesses are beginning to stockpile and inventory build, so as to be able to mitigate supply chain interruptions which may also be an option for businesses with warehousing operations.
Brexit was meant to engender a ‘bonfire of regulations’ that would set UK business free but the negotiations remain a sea of red tape. As we in the UK are currently members of the Single Market and are completely aligned with the rules of the Single Market, we have complete access.
How we diverge depends on what deal is signed with access alongside European Economic Area models allowing the most flexibility in the longer term. For goods, this means that maintaining regulations that already allow access to the Single Market, may be beneficial in the short-term given the unlikelihood that these will change materially.
Needless to say, these issues are much more complicated when it comes to access and regulation for services companies, who remain hopeful that some form of equivalence deal can be struck.
Claudia Catelin, EU and Trade Analyst at the IoD, says “Minimising regulatory divergence with the EU is favoured by a majority of our members. As a priority this came way ahead of the option to diverge, at a ratio of more than two to one”. She added that “whatever the future holds for the future of the UK regulatory regime, it is imperative that businesses have clarity on the direction it is headed – sooner rather than later”.
Business funding and access to lending operations have been hot topics since the depths of the Global Financial Crisis. Increasing access to alternative finance providers was a key objective of regulations passed in 2015 that mandates that banks refer any SMEs they reject for finance to a designated online finance provider.
Interest rates in the UK have risen twice in the past 12 months but remain close to historically low levels. While we are some way from additional quantitative easing spending in the UK, the Bank of England’s Funding for Lending Scheme could easily be reinvigorated to support SMEs in a post-Brexit landscape. British banks make their money from lending to British businesses; that is not going to change because we leave the EU.
A lot will change on Brexit between now and the end of the Article 50 period, not least as a result of both EU and UK political positioning.
SMEs can ably ride out some of that change by donning a SCARF and being ready to act once the deal terms are known.
You can catch up on the first two parts of our Preparing your business for Brexit series here:
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