Is your business Brexit-ready?
In my effort to make sure we’re Brexit-ready, I signed up for email updates from the ‘Department for Exiting the EU’ a few months ago. However this morning their email was, once again, consigned to the bin.
That’s because practical advice for businesses seems to be thin on the ground, and whether we end up with no-deal, May’s deal or staying in the EU, it’s feels difficult to make firm decisions while everything is far from settled. As the FT says:
“Entrepreneurs make a virtue of coping with uncertainty, but many are still wondering how to prepare for Brexit”.
Is there any advice out there?!
Carry out a risk assessment. Much as you would do if you were considering the health and safety of your workforce, you can use a similar approach. Ask:
- What are the risks?
- What products / services might be affected?
- Are any plans already in place?
- Is further action necessary?
The British Chambers of Commerce have recently published a Brexit Checklist for Businesses which provides a good start for businesses which might be directly affected by the change in our relationship with the EU. They’ve highlighted the following areas for consideration, and have set out the context and provided questions for you to ask:
- Workforce and future skills needs
- Future staffing requirements
- UK/EU customs checks
- Potential delays at UK/EU border
- Tariffs on UK-EU trade
- Rules of Origin in UK-EU trade
- EU trade agreements with third countries
- Customs facilitations, reliefs etc
- Customs/export training
- Import VAT
- VAT registration in the EU
- Currency risk
- Intellectual Property
- Contracts Review
- EU regulatory regime
- Competition policy and state aid
Not selling to / buying from the EU or employing EU staff?
If you’re not directly engaging with the EU, we hear you! However the EU has infiltrated all areas of UK life in the last twenty years, so it’s not unreasonable to expect some indirect impact. We don’t buy from or sell to the EU ourselves, and at the moment only employ UK staff. However factors we’re considering include:
- Consumer confidence
- Business confidence
- Supply-chain resilience
- Public spending
We’re also acutely aware of the impact Brexit will have on our interaction with the authorities. While we’re a fan of the gov.uk website, and use HMRC’s digital services daily, we’re also aware that HMRC is a large and complex organisation to change. Its Making Tax Digital project, launched back in 2015, is due to go live on 1 April 2019. It seems inconceivable that systems and processes will be updated and available in a matter of months.
Is there an up-side?
No doubt time will tell, however there are some proactive things you can do to increase your business resilience. Whether you are a Brexit optimist or pessimist, we’re encouraging our customers to make sure they’re running a tight ship, with good margins and a flexible cost-base.
Know your margins
If you’re an installations and maintenance business, a three shop retailer, or selling products wholesale and retail, it’s not enough to know what your overall business margins are. You should be aware of the profit margins you make on each product or service line.
It’s surprising just how few business owners have this information at their fingertips. Your accounts system may report this by ‘tracking category’ or ‘department’. If you can’t see this information, ask your accountant. You may well have an idea what your margins should be, based on your approach to pricing. However it’s important to check that the numbers align with your expectations.
Some of our customers have decided to discontinue whole business lines based on information about margins achieved in certain business streams. Others have chosen to maintain those services, often because they support or compliment more profitable parts of the organisation, bringing in new customers and revenue. Nevertheless, with this information it becomes clear where you should dedicate your time and energy.
Cash is King
Lack of what accountants call ‘working capital’, and the rest of us know as ‘cash in the bank’, is the single biggest cause of failure for small businesses. Like any other economic shock, Brexit has the potential to fast-forward this process for businesses without sufficient cash. Profit margins can be great, but if you’re not paid on time and have staff and suppliers to pay, you could really struggle.
Steps you can take to improve cashflow include: credit-checking customers (while bearing in mind that small businesses often pay quicker than larger organisations), sending invoices out electronically and immediately, getting paid sooner (taking deposits, and collecting payments by card, or direct debit). You should also reviewing recurring costs / contracts, reducing (old) stock, and consider leasing rather than buying where appropriate.
Being able to respond quickly to changes in the market will be vital if or when Brexit finally takes place. For some companies that will mean being able to transfer parts of their business to another EU location. For others it may mean finding customers who’d like to deal with a UK rather than EU-based business. Furthermore, for businesses experiencing a drop in sales, it’s vital to be able to reduce costs quickly.