Brexit Strategy: The Immediate Response for UK Businesses
The waiting is over, and despite deeply divided feelings about the referendum result, the UK is almost certainly on its way out of the European Union. This first instalment of our new Brexit Strategy blogs covers the immediate impact on UK small businesses and provides practical advice on what to do now.
The timeline of our departure from the EU is not yet set, though the official process is designed to last at least two years. A great deal needs to happen between now and then and until the last document is signed UK businesses will continue to operate as full members of the EU. Yet the affect of the vote is already being felt across the nation.
What Brexit means for you and your company will vary greatly depending on your business model, sector, workforce and supply chain. Very few will escape some form of impact, but that does not mean disaster. Much will depend on assessing the implications and making the most of the situation. One thing is certain in these uncertain times; change brings opportunity. The challenge is knowing where to look for it and acting with wisdom as well as speed.
Over the next few weeks we will continue to talk to our clients about what Brexit means for them and investigate the mid and long-term view through our blogs. If you’d like to share your story or pose a question for us to cover I’d love to hear from you. Tweet me @biveksharma_.
In the meantime here are some points to consider when exploring how to protect and grow your business in these fast-changing economic conditions:
Written in the margins
One of the most startling consequences of the referendum so far has been the dramatic fluctuations in the value of the pound. With bond yields hitting record lows and the pound crashing to below $1.30 for the first time since 1985, the value of our currency is taking a bit of a bashing at the moment. While this may seem like a far removed issue for most small business owners, everyone fits into the supply chain somewhere. For businesses buying goods, services or even hiring (consultants or agencies for example) from outside of the UK, this is particularly pertinent.
When the pound drops by 15% (as it recently has), the cost of purchasing anything in another currency will increase. Just ask the victorious tennis stars whose Wimbledon prizes are expected to drop significantly in value when converted from pounds to dollars due to the exchange rate.
Firms affected by this have two choices: to absorb this cost and accept a reduced margin or pass the increase onto customers. In the immediate term, many businesses seem to be choosing to absorb the costs in the hope that they are only temporary, but this is rarely a viable long-term strategy.
The impact on margins and profitability will vary massively from business to business so beware of relying on generalisations and if necessary, seek expert advice.
Keep going, keep growing
Recent history has taught us that in a downturn people sit on their hands and stop buying, but this is a frighteningly effective self-fulfilling prophecy.
Right now the biggest thing we have to fear is fear itself. This goes for individual companies as well as the country as a whole. Holding back on worthwhile investments is a great way to give more courageous competitors an advantage. But the crucial word is worthwhile. It’s about figuring out which investments will pay off in the economic conditions ahead.
Built for all weathers
Navigating an uncertain economy does not mean cancelling growth plans – planning to grow is crucial, given the alternative is planning to stagnate. But delivering growth in a shaky economy can involve a different mindset and a different strategy, so business as usual isn’t quite right either.
While re-focusing an enterprise to suit new conditions can take time, there is an immediate need to begin an assessment to see what ought to be done to protect the business and build resilience while capturing new opportunities. In the credit-crunch induced recession which began in 2008, business commentators often talked of recession-proofed businesses – think funeral directors, or cheap luxuries like chocolate and home pampering products that people indulge in more when their budgets are cut. Yet, whatever awaits our post-Brexit future, it is unlikely to be an exact repeat of the downturn we’ve recently escaped.
Many economists are predicting fluctuations and uncertainty above all else – a nation has never left the EU before and even the Leave campaign has not revealed a vision of the future, just a set of “possibilities”. As such, leaders need to be prepared for the unexpected, to sharpen their agility, being ready for rainy days or sunny days – and expecting a mixture of both.
For many this may mean a period of transition, looking at which products and services are utilities not luxuries, which can be slightly re-focused as a cost-saving proposition and considering which markets – both in terms of sectors and geographies are now going to offer the opportunities needed for both income and profit margins. While this period of adjustment is challenging, it is a chance to improve a business and spur it on, on many levels. The effect of leadership at this time could be magical when so many employees feel in need of it.
To paraphrase Douglas Adams this may not have been where many of us intended to go, but let’s see if it can get us where we need to be.
Visit us again for the next instalment of our Brexit Strategy series, where we’ll be discussing what to do in the first few months following the referendum.
To find out how KPMG Small Business Accounting could help free up your time so you can concentrate on business success, request a callback for a quote today.
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