Posted on 9 May, 2018 | 5 mins
Bored by Brexit? We understand. Even politicians keep mispronouncing it breakfast, probably because porridge sounds more interesting than the UK’s protracted departure from the EU. But if breakfast is the most important meal of the day, Brexit is the most pressing change on the plates of SMEs.
Small businesses will need to resist the urge to disconnect from the prospects of post-Brexit Britain. Which isn’t easy when the daily headlines are dominated by the possibilities of a last-minute referendum to reverse it, finger pointing around who’s to blame and arguments over whether the vote was legitimate in the first place. None of these things actually help people prepare for what’s already been a seismic disturbance to their businesses.
There’s uncertainty, and a lot of unknowns—but the UK’s small businesses aren’t powerless either. Here are three things you can do right now to prepare your small business for Brexit.
Look at your exposure
After Brexit, the UK will likely have less favourable trade deals and increased tariffs for EU imports and exports, as well as a potentially weakened currency—all of which affect your margins.
Take a hypothetical 10% fall in the value of the pound. A £1 million order from an EU supplier suddenly becomes £100,000 more expensive. Since the Brexit vote, the pound has actually fallen by more than 13%¹.
So, a simple thing you can do today is measure your Brexit exposure by asking:
- Where are your customers?
- Where is your inventory?
- Where is your money?
It’s time to take a fresh look at these questions rather than relying on what might be out-of-date information. To help, many of your apps will have collected the right data, making it a less daunting task.
Your eCommerce platform will show you where you’re currently shipping goods to, while Google Analytics can be used to see your website traffic and where tomorrow’s customers might come from. Services businesses can get a similar overview through their CRM tools.
For stock, your inventory management tools will hold information about which of your warehouses store which goods. Keep in mind how difficult, expensive and timely it could be to move goods in and out of the UK after Brexit happens, and ask yourself: are you comfortable with that risk, and is there a contingency plan in place?
And thirdly, how will Brexit affect your money. Foreign exchange (FX) and risk go hand in hand, but the effect of a heavily devalued pound will weigh on the minds of cash-constrained, internationally minded SMEs more than most. Similarly, there are FX apps that make it much easier to manage what can be a complicated risk.
Your business will likely have other risks besides just these few—such as access to a smaller pool of talent. Most importantly, you should start looking at your exposure today, so you can start making a plan to limit the impact long before an EU-free tomorrow rolls around.
Review your pricing strategy
Brexit will likely put extra pressure on your pricing and profit margins.
Before the Brexit vote took place, the Treasury looked at the impact of a vote to leave the EU. They came up with two scenarios: a ‘shock’ and a ‘severe shock’². A severe shock scenario—among other things—was an annual rise in the general cost of goods by 2.7% within a year after the vote. It actually reached 2.6% before drooping to 2.3% today, so not far away from reality³.
But don’t fall asleep just yet, because this will really matter.
If your customers or clients have less money, can they still afford to be your customers? Is your product or service essential, or something that might get squeezed out of their lives? If you answered “no” to either question, the way you price your wares post-Brexit could keep some of these customers on your side.
Also look at the possible impact on the cost of your raw materials to make goods. If they also rise, what are the prospects you can increase your prices in line with them?
Finding some of these answers might be a case of getting to know your customers or clients better, seeing how important your price point is to them and trying to deepen relationships for the future. Your CRM will be invaluable here, while great inventory software has information around your bills of materials to help you assess and make a stronger pricing decision.
If a complete pricing review is on the table, we covered the basics of pricing strategy in a recent blog.
Prepare for cash flow fluctuations
With all the uncertainty around Britain’s upcoming EU exit, it’s not surprising that businesses in the UK have ranked Brexit as their biggest ongoing concern⁴.
Cash flow—the thing usually ranked as their biggest worry—has slipped to second place, though the effect of Brexit on a business’s cash flow makes money more of a focus, not less.
Now is the time to look over your cash flow trends and forecasts. If your sources of revenue are tight right now, the next few months will be crucial in getting them Brexit-ready. That might mean looking to reduce your cost of production, making your internal workings more streamlined and productive, or being more proactive with your debtors to start getting your invoices paid quicker.
It might also involve increasing your customer base dramatically to take advantage of economies of scale, which could lead to an intensive marketing effort this year. Or, you might focus on your line of credit, and what finance options could give you a safety net in the future.
Whatever it is—and there are many other options besides those listed here—keep your cash flow top of mind as we start building towards Brexit. Your accounting and money apps will be a big help here.
Brexit, breakfast, a mistake, a great moment in British history: whatever you call it, it’s set to be served up on 29 March, 2019. With so much uncertainty, it’s up to businesses to plan for what’s ahead as soon as they can, or breakfast might soon turn into a dog’s dinner.