It is perhaps the biggest political shakeup of the UK since World War 2, but while there are many words discussing hard Brexit, soft Brexit, politician’s performances and failings, what does it really mean for UK businesses today?
While trade barriers will affect businesses in different ways depending on the kind of markets they operate in, the consequences of Brexit are likely to be much farther reaching that import/export costs and bureaucracy. The government continue to present vague ideas of what Brexit will ultimately look like, but currently it would appear that to preserve border controls, for at least an interim period, tariffs for external trade to and from the EU will be put in place.
This will likely take the form of the World Trade Organization system of tariffs, and could last for several years while new trade deals are organized. The wider effects from this are likely increased food costs and a continuing decline in sterling. This, of course, will have an effect on the majority of businesses, reducing available spending locally as well as the effects on international trade.
Whether any of us agree or disagree with either the vote itself or the government response is largely irrelevant, the task is to deal with the situation presented to us now. Look beyond the rhetoric of both sides, and what we have is a manageable situation for most small businesses. With the falling value of sterling, imports will be more expensive, in particular fuel and energy costs could rise. It is essential for every business to make plans to accommodate this increase in overheads early. Efficiency savings or alternative energy suppliers can help overcome such cost increases if plans are in place early. Now is the time to think about external overheads and how to minimize the impact of any further currency devaluation or tariffs.
The other important aspect of Brexit that will affect more businesses is funding. One of the industries facing the largest risk of disruption is the financial services industry itself. While where head offices and trading rooms are located makes for a political hot potato due to tax revenue risk, from the perspective of a small business in the UK, what is significant is how this will affect lending policy. The danger to businesses throughout the UK should things become difficult for the financial industry is that they will become even more risk averse than they currently are, and obtaining the kind of funding that start-ups and other SME’s need to grow and survive could become more difficult to obtain.
For any small business, this is perhaps the biggest challenge that Brexit may bring, EU grants will obviously disappear, and so the need for bank funded investment could be increased at a time it becomes more difficult to obtain. In addition, one of the Bank of England’s major tools to respond to the fall in value of sterling is to raise interest rates. While there is no sign of that yet, such a move would increase the cost of funding for business and make loans more expensive. Looking to fixed rate loans, they are still out there if getting rarer, can offset that risk somewhat, but that is no solution for those that do not need funding right now.
There will be some options, some smaller lenders in the industry are entirely UK based and will remain so, unaffected by the external market, they may offer a better value funding option should the worst-case scenario appear, but in reality, simply being aware of the likelihood of increased funding costs when planning for the next five years can help you factor in such issues and avoid being caught out.
Planning for the main issues likely to effect UK based businesses does not have to be a doomsday scenario, with much still an unknown quantity, there is room to manoeuvre. The best piece of advice for all business owners at the moment is to avoid the overreactions from the political commentaries and simply make common-sense allowances for what will likely be the outcome in future planning.