Are businesses ready for Brexit?
- 5.7m SMEs in the UK
- 99% of UK businesses are SMEs
- 74% of UK businesses are in the service sector
In the UK there are 5.7 million small and medium enterprises (SMEs) in the UK as of December 2018. SMEs account for 99% of all UK businesses and they are fundamental to the UK economy.
Each industry has its own challenges and specific pressures. However, it is true to say Brexit will have an impact that will be felt across them all.
Are businesses & SMEs ready for Brexit?
The UK’s impending departure from the European Union will bring change for businesses of every size and sector. Reducing the risk and maximising opportunities of whatever deal Britain gets takes preparation, but current preparation strategies vary widely.
A recent survey conducted by The Federation of Small Businesses found that a significant percentage of UK businesses were not ready, with many not looking at the challenges and putting contingency plans in place.
The study identified three main groups:
- Proactive businesses that would be directly affected by Brexit and perceive that they would lose the businesses that have started instituting changes administratively etc.
- They found the other group was the ‘wait and watch’ type of businesses, who will see what happens after March 2019 and deal with matters accordingly.
- Finally, there is the ‘ostrich’ category, who have not even considered how Brexit will affect them. These are businesses who are not actively engaged in exporting, and because they are based in the UK, they do not see themselves as being affected.
What do businesses consider to be the main challenges of Brexit?
With Brexit nearly upon us, many SMEs businesses will likely feel paralysed with uncertainty with so many unknown variables, unlike large companies, not all small businesses can afford to plan and pivot in the same way. Challenges facing UK businesses include:
- The diminution of growth in the economy because of the lack of confidence ahead of Brexit.
- Supply chains will be affected in the event of a no deal Brexit, which is considered the most harmful and potentially difficult scenario. The free movement of goods is one of the fundamental tenants of the single market. This will become a practical consideration for businesses post-Brexit.
- Cost and availability of certain goods may be impacted significantly.
- Importers and exporters may need to have measures in place to comply with additional administration and to pay additional tariffs.
- Businesses reliant on migrant workers from within the European Union may see a deal that restricts the free movement of workers into the UK, several sectors will see a major shift in workforce dynamics.
- Finance: accessible and affordable finance is essential for the growth of a business, historically when banks are faced with troubling times they have severely restricted their lending. It has been felt that lending to SMEs is already restricted, in the event of Brexit, it is likely to get worse. Where the banks may be in a stable enough position to ride the storm of Brexit. It is almost certain that SMEs will not be able to access the funds to enable growth from traditional lenders in the months following.
- Accreditations: In the event of a no deal Brexit these may potentially be void, for example, the CE kite mark.
What can businesses do to mitigate the risks?
Businesses should devote time to consider the potential consequences of Brexit - direct or indirect.
Key considerations include:
- Accurate records: The extent of documentation that will be required when we do not have a seamless single market, will be extremely onerous. Businesses should look to maintain complete and accurate records; such documentation will be required when dealing with organisations such as the Customs Declaration Service. The extra administration will no doubt place a significant burden on UK businesses.
- Budgeting: Predicted VAT increases along with an increase in customs charges and other associated costs will substantially impact UK businesses post-Brexit.
- Contract Audit: Businesses should carry out an audit of contracts, in particular, those that have a UK element (direct or through the supply chain), and assess the effect that Brexit may have on them.
- Employees: Existing employees who are EU Nationals will need to apply for settled status. Businesses should look to consider how they will track the nationality status of employees and ensure immigration compliance going forward.
- Finance: Explore ways in which the business can prepare financially, potentially looking at sources of finance from alternative providers. Be prepared for a weakening of the pound especially if the business relies on the strength of the pound to buy goods.
- Strengthen existing relationships: The belief is that being on friendlier terms with key suppliers will help cement the future of a partnership - no matter the Brexit negotiation outcome.
See Senior Associate John Colvin's full interview with Insider Media below.