As we near the end of the Brexit negotiations between the UK government and the EU, are you thinking about how you might cope with whatever is the outcome. Most business owners have not considered how Brexit in whatever form it takes will affect them, but one thing is certain all businesses will be affected by Brexit.
What most people don’t know is that we are close to agreeing the exit agreement, which consists of three elements; the exit payment, the right to remain for EU citizens in the UK and the right to remain for UK citizens in the EU and finally the border between Northern and Southern Ireland. The exit payment of £40bn has been agreed, the right for EU citizens to remain in Europe and the right for EU citizens to remain in the UK has also been agreed. The only outstanding item is the border between Northern and Southern Ireland. Clearly, the EU want a hard border between Northern and Southern Ireland, whereas the UK want to be able to move freely between the two countries. I am sure that an agreement will be reached around the Irish border, potentially utilising a technological answer to the problem.
Exit negotiations continue and whilst there has been no agreement reached as to the form that the exit will take, there are three possible scenarios; a soft exit, which means we could have an arrangement similar to Norway, whereby we pay a fee to enjoy all of the benefits of free trade with the EU. As member state of the European Economic Area, Norway fully applies the whole acquis communautaire relevant to the four freedoms (free movement of goods, persons, services and capital), along with that pertinent to flanking policies (ie transport, competition, social policy, consumer protection, environment, statistics and company law). The second scenario is that we have an arrangement similar to that which Canada enjoy. Canada has negotiated, but has not had ratified a free trade agreement for goods and services, but it does not cover all of the EU laws and legislation. The third scenario and also very likely is that we exit the EU with no agreement in place. This scenario would place the UK in a situation whereby the only way to trade would be on World Trade Organisation terms. This means that there would be tariffs on all goods and services traded with the EU. This last scenario could potentially be challenging for all UK businesses in the short term and may trigger an economic recession, increases in interest rates and a weakness of sterling.
It would be pertinent as a business owner to start planning now for this scenario. You should be thinking about measuring your exposure, by;
· Mapping and how your company interacts with the EU, understanding what your touch points are (eg markets, supply chain, people, tax and customs)
· How might potential changes to the UKs relationship with the EU affect your organisation, by running some potential scenarios and modelling the impact on your financial performance and operations.
· How you might cope with the additional cash flow demands of VAT on exports
· How might you cope with the cash flow demands of tariffs on goods imported from EU
· How will you cope with an increase in labour cost
Having completed the above you should also be thinking about Brexit-Proofing your business through the transition period. Such mitigations could be;
· Minimising current inefficiencies
· Exploring alternative sources for labour
· Communicate clearly with your key stake holders; staff, investors, customers and suppliers
· Develop contingency plans of what to do and when
· Investigate alternate means of funding the business, remember that there could be cash flow issues, you may need to find extra cash at short notice.
You should also give some thought to how you might capitalise on opportunities which will inevitably be created. You will need to think about;
· How you can change or adapt your business model to the new situation
· How can you optimize processes
· Explore new international markets
· Capitalise on new domestic opportunities
· Assess how your competitors are affected by Brexit
I would urge all business owners large or small to start to think about how Brexit will affect them, those that fail to plan are preparing to fail.