Risks of Brexit: Checklist for Small Business
For small business people, Brexit is not just a political question: it is simply about planning pragmatically for an unprecedented change to the way we do business and the climate we do it in. Getting Brexit right is firstly about being aware of the threats and planning to mitigate them. Secondly, it is about positioning your business to capitalise on the opportunities that will fall to those who ride out the uncertainty and likely downturn, to capitalise when business and consumer confidence returns.
Brexit is particularly risky for small businesses, which lack the resources and advisors available to large companies. According to a survey from the Federation of Small Business (FBS) of 1,300 UK SMEs, only 1 in 7 were prepared for a ‘no deal’ Brexit and most have done no Brexit planning at all. Unless you are unusually insulated from the international market, getting your business’ Brexit planning right is likely to make a big difference to profits, growth potential, and the nature and strength of competitors. Below, we explore four key risks SME’s need to be aware of:
1. Movement of Goods
A key risk, intensified (but by no means exclusive to) by a ‘no deal’ scenario, is tariffs on exported goods, which will appear on 11pm, 29th March 2019. This makes supply chain mapping essential. You need to know where your imports come from, where your exports go to, and what product category they fall under. Even if you’re ready for this, your suppliers may not be. A holistic risk assessment of your entire supply chain is likely to require considerable analysis.[1]
Additionally, there are likely to be numerous and complex changes to customs declarations administration. This may be something entirely new if your business currently trades only to the EU. Even if a free trade agreement is signed, customs clearances to prove UK origin may still apply and HMRC has estimated the number of customs declarations will rise from 55m to 255m annually post-Brexit. These can be particularly complex if you do not have ‘Authorised Economic Operator’ status (which most UK SMEs do not): the EU requires eight copies of each customs declaration.
The Government has also advised exporters and importers to register for a UK EORI number and to sign up for Brexit email alerts.[2]
2. Planning ahead with Cash and Stock
Greater complexities in trading – especially potential supply chain issues – are likely to mean businesses need to keep more cash on hand, as well as greater reserves of stock, than they did previously. Naturally there’s also the possibility of a reduced volume of trade with European markets, especially in the shorter term. European businesses – even if a ‘knee-jerk’ reaction on their part – may feel the comparative advantage of trading with British companies is reduced.
Negative perception from Europe may also damage investor confidence, also because issues of passporting rights for financial services could be complicated or potentially withdrawn.[3]
3. Product and Services and Technical Compliance and Contracts
Businesses trading in technical products are advised to review their specifications are up-to-date and compliant with the EU’s complex regulations. Contractual arrangements are also liable to change when trade occurs across EU borders. In particular, contracts will need to comply with International Terms and Conditions of Service. Existing intellectual property rights enshrined by EU law may also no longer be valid and require reissue.
4. Workforce
In recent years, UK businesses have become increasingly dependent on EU workers. While it is unlikely that existing EU nationals working in the EU will not be granted residence, the real problems for businesses are likely to begin when they need new workers. The complexity of hiring them post-Brexit, while the details remain unknown, will inevitably sharply increase and become more bureaucratic even in the event of a ‘softer’ Brexit.
The impact of this will naturally be felt most sharply by expanding rather than established businesses, and particularly by small businesses where every individual worker matters a great deal. One in five small businesses currently employ an EU citizen.
Preparation and TPS: a Second line of Defence
Preparing adequately for Brexit to mitigate these risks is complex. Easy for big business perhaps, with their access to forecasts, advisers, and lobbying power – but much more challenging for small companies. While drawing up a plan for the above risks is wise, Trade Profit Stabilization (TPS) gives you an automatic second line of defence because – whatever happens – it protects the bottom line: your profits. It can help you ride out the uncertainties, and then benefit from the bounce back once the market and business community understands what Brexit will look like.
All companies are hoping for the best, but TPS also prepares you for the worst easily and inexpensively and puts your company in a position of strength in a post Brexit economy.
[1] https://www.eef.org.uk/resources-and-knowledge/research-and-intelligence/industry-reports/brexit-briefing-life-after-the-eu
[2] https://www.gov.uk/government/organisations/department-for-exiting-the-european-union
[3] https://www.bloomberg.com/news/articles/2018-06-24/eu-businesses-cut-u-k-ties-on-brexit-and-want-britain-punished