Change and Uncertainty remain apt synonyms to describe the impact of a ‘No deal’ Brexit on businesses. As the media purports more stories of gloom that comes with uncertainty perhaps there are reasons to be optimistic about the aftermath of Brexit afterall what is the point of entrepreneurship if not to seek opportunities and work with a growth mind set.
This is by no means an attempt to downplay the effects of a “no deal” Brexit. If we read the data according to the UK Government – EU Exit long term economic analysis , it suggests Brexit will result in a reduction to GDP under all scenarios over a 15 year period, ranging from -2.5% in the modelled white paper to -9.3% in a ‘no deal’ scenario. The numbers suggest a higher likelihood of business closures in the event of a recession. So for smart businesses this is certainly a time to act on a contingency plan.
A 2 – 5 – 10 year review of a UK business’s strategy following Brexit should bolster efforts in areas where there are perceived risks and leverage potential opportunities. The Brexit contingency plan should consider the following:
- Encouraging an agile culture and mind set within the business to deal with change. Entrepreneurs and small businesses have thrived during periods of instability by being more flexible than established firms to quickly adapt and respond to changes internally and in the market, this would prove useful following Brexit.
- A lead person within the business capable, empowered and knowledgeable enough to make decisions concerning the Brexit planning, this might be an in-house personnel providing the required governance or a hired consultant supporting the contingency effort.
- A risk register and documented plan that details risk areas with mitigations, action plans and owners against each area.
As you review your business strategy and contingency plans, consider the effects of Brexit on these areas in your business.
A short term economic recession and volatility in value of the Sterling would impact stock markets following Brexit and may affect sales and business confidence in investment. High interest rates could be a deterrent to investment causing FDI to be deferred due to uncertainty following the UKs withdrawal from the EU single market as businesses in the EU observe the impact of new rules regarding the flow of capital and financial services between economies.
This may lead to a higher cost of operation for businesses in the UK with the pound likely to be unstable over a period of time resulting in an inflation and an increased cost of imports for small businesses in the UK. The requirement for upfront VAT on all goods imported from the EU along with the actual costs of producing the product itself will have the knock on effect on cost of operations.
A fall in the value of the pound though could also encourage a fresh wave of inward investment as businesses capitalise on lower exchange rates hence creating avenues of growth for small businesses.
Businesses that have customers concentrated in the UK may see a decline in sales as customers minimise investments and spend. This presents an opportunity for UK businesses to pivot and diversify, expanding into emerging economies and international markets, engaging a new customer base.
Skills and staffing
Reduced EU migration may reduce available workforce in the UK and impact skills in areas such as hospitality, construction, academia, agriculture, and seasonal employment. This could create more opportunities for individuals and businesses inside the UK labour market. The UK has stated that any EU nationals settled in the UK as of 29 March 2019 will be able to apply for a settled status scheme in which the individual is able to live and work in the UK so long as they do not exit the UK for longer than a two year period.
Distribution and Supply chain
It may become longer and harder to ship products considering the higher costs of imports and possible delays at the borders as UK firms comply with the new EU rules. This presents a good time for importers and retail businesses in the UK to source other suppliers outside of the EU.
With over 40% of UK exports going into the EU in 2017, reduced inward investment from the EU could in turn lead to higher tariffs on exports.
Perception of UK business
Whilst there are reservations about the strength of an independent UK from the EU, the reality is there are countries within the EU experiencing staggered growth or a semi recession. The UK’s exit from the EU may encourage some countries to welcome the opportunity to now work with a UK brand that is independent of the EU and its regulations; this could lead to more international joint ventures and partnerships.
As UK businesses adapt to the effects of Brexit, small businesses in consultancy and service driven businesses are likely to be winners due to a fast growing demand from corporates and large enterprises seeking help with coping with legislation and effects of Brexit.
It is anticipated that there will be no immediate changes on indirect and direct tax. As new tax laws come into play in the UK, this may take time to mature and develop.
Renegotiations may become necessary on business and customer contracts as new rules come in play and impact service level agreements or cost of operations.
Security and Data Protection
Under GDPR, personal data can be shared between EU member states , as the UK exits the EU and becomes a “third country”, data exchange with the EU becomes more restricted, businesses may be required to review and comply with the UK’s own rules on data protection. By now businesses should have adequate policies in place for data protection, the policies would need to continue being enforced to show there are adequate measures in place to safeguard customer data.
Need help analysing the effects of Brexit on your business? Contact Us to engage a consultant for a review and contingency plan for your business.
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