As it stands, the imminence of the UK’s departure from the EU is causing a great deal of uncertainty and instability in the small business sector. For many proprietors, the implications of Brexit are still unclear, however, most people understand that their operations may be impacted in some capacity. The influence of Brexit on your small business will largely depend on what type of deal is struck with the EU, as well as on the type of small business that you own and operate.
Until such times as the EU leave has been effected, the full extent of Brexit’s influence on businesses in the UK is merely speculative. There are, however, some impacts that businesses have even prior to the beginning to Brexit being implemented. In this post, we at Berley, London’s small business accountants aim to share some considerations regarding Brexit and how they may impact your enterprise.
Less EU workers
Current statistics indicate that following the announcement of Brexit, the net migration level of EU workers coming into the UK has dropped, with the last count placing this number at 74,000. One theory attributes this to uncertainty pertaining to workers’ rights. Most workers’ rights today are determined by EU law, which the UK will not be subject to once Brexit is enacted. If your business currently relies on EU workers, retaining your staff should be a priority.
It is highly unlikely that many of the current workers’ rights will change, however, engaging with any EU workers you employ about their legal status will help to reinforce their understanding of their entitlements following Brexit. One thing you can do right now to ensure the security of your EU workforce is encouraging them to apply for “settled status” with the Home Office. This will need to be done by June 2021, but doing it sooner represents an effective way to consolidate confidence and allay any fears they have about their legal rights in the workplace. Your employees’ trust is paramount, so make sure you earn this trust and treat them fairly. Giving them a solid future will make them less likely to look for job prospects elsewhere.
Attract foreign investment
The pound has dropped in value following the Brexit referendum, sitting at around 1.14 Euros at the time of writing. Many experts predict the value will drop further if the UK leaves without an agreement, however, like all things that will be impacted by Brexit this is unclear. A weaker pound has its own challenges and advantages, but one clear advantage is the likelihood of an influx of foreign investment into UK businesses. With plenty of overseas companies looking to get a foothold in the UK, especially if the pound drops further, Brexit has the potential to put UK-based small businesses in the perfect position to forge some profitable connections and partnerships. To make your business look attractive to foreign investors, having a solid business plan with strong growth statistics is key.
Depending on what sort of deal is struck, the UK may be able to hold onto its current free trade status within the EU, however, this is uncertain until such times as Brexit is actually implemented. Free trade is obviously beneficial to businesses that rely on imported goods to sustain their business and operations, so small business enterprises should be mindful of what eventuates with respect to trade and any tariffs they may have to consider.
UK supply chains may be cheaper
Brexit could potentially force the introduction of new laws, which may include legislation pertaining to customs and excise duty being paid on anything imported from the EU, thereby increasing the price of anything shipped in. A full list of the tax implications of Brexit can be found on the government’s website, but the upshot is that it will cost more to import goods into the UK from EU countries if a free trade deal isn’t struck. You can prepare this now by factoring the increased cost and adjusting your business plans.
If this legislation is enacted and makes trade with the EU a more costly exercise, small businesses will have the opportunity to find new or existing suppliers within the UK, which is positive for the economy, or alternatives outside the EU (look at emerging markets from Africa or South Asia as they tend to be cheaper). If your cost is going to be less than your competitors with established EU suppliers, you know you will have a massive competitive advantage.
The best practice for minimising the potential damages that a non-free trade agreement will have is to draw up and quantify the increased costs and delay in movement of any goods that your business depends on from the EU. Likewise, you should review all contract material from EU distributors, and potentially consider putting contingency contracts into place with alternative suppliers to reduce the impact of Brexit if such an agreement does come into place.
Consider a new sales and marketing plan
With the impacts that Brexit is likely to have on your business, a revision of your business’s sales and marketing strategy may be required. If your business is forced to alter its suppliers, this will likely have a quantifiable impact on the way your product is received by your clientele. You should consider whether tariffs introduced under Brexit’s EU trade agreement are likely to impact sales, how your clients will potentially react to an increase in cost, as well as how this will influence the profitability of your business.
You should also be mindful of the ways in which a change of supplier might impact your target market and established clientele, particularly if the location and source of your product is a brand marketing or selling point. If you are planning on sourcing from inside the UK, a ‘Buy British’ marketing switch will be necessary, so too will any change to an alternative overseas supplier result in a change to your marketing tactics.
Brexit and financial planning
With experts suggesting that the small business industry will see the greatest impacts of Brexit, adapting to any changes in the post-Brexit climate is essential business practice. Regardless of which sector your business operates in, you’re likely to experience some sort of ripple effect following the leave. One aspect of this comes in the form of financial planning.
For many UK businesses that deal with clients in the EU, they invoice their clients in Euros, but their operational costs are in pounds. With the predicted changes to the economy set to see a rise in the Euro and a drop in the pound, this may be good news for some but bad news to others.
Taking into account this volatility of the economy, as well as the possibility of import tariffs, small businesses will need to be prepared for a revised financial strategy. Drawing up forward-looking cash flow forecasts is a good way to prepare yourself for the increased business costs of a worst case, no-deal Brexit, and doing so should be a valuable insight into where cash deficits may arise, and how best to manage these.
Financial planning can be a daunting and confusing task, so it is always advisable to seek professional advice in financial matters where you aren’t completely sure. At Berley, we are the small business specialist accountants in London and we understand that Brexit will have considerable impacts on small UK businesses, and this can be a difficult time for small enterprises. With over 30 years of experience in dealing with small business advice, we have the insights that can help consolidate your business’s foundations in the post-Brexit climate and beyond.
Call us on 020 7788 8261 to talk with someone from the Berley team to discuss how we can assist you in growing your business.
This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.