Following the vote by the UK to leave the EU, aside from the political upheavals, what are the practical problems that small business owners and tax payers will be facing as a direct result of the Brexit vote?
The factors that may affect businesses, especially smaller businesses in the UK, in the coming months are bullet-pointed below. Don’t forget that these are generalisations. Some may apply to your circumstances and some may not.
• If the sterling exchange rate settles at a lower level the cost of imported goods will rise and our exporters may benefit as their goods and services will be priced lower in overseas buyer’s markets.
• If the rising cost of imports triggers inflation the Bank of England may have to step in and increase interest rates. This will increase the cost of borrowing; business profits will suffer as will cash flow.
• An alternative scenario is also possible. The Bank of England may reduce interest rates to encourage investment and lower the cost of borrowing for UK businesses and home owners.
• Firms that trade in the property sector will need to keep a weather eye on demand as buyers may be discouraged by the overall uncertainty about the longer term outlook for interest rates. As a consequence, we may see the property market flat-line or prices fall.
• Uncertainty may encourage banks and other lenders to be more cautious when considering loans. Cash flow management should possibly shift towards the top of to-do lists, just in case there is downward pressure if credit does tighten up.
• Businesses and non-profit making enterprises that rely on EU funding should contact their funding agencies as soon as possible. Be prepared. Start looking for alternative funding now. Support for farmers and other key groups may be replaced by UK government grants.
• Businesses that trade with the rest of the EU will need to re-examine their sales and marketing strategy for the future. If and when the final EU curtain falls they will likely find their exports subject to tariffs. Time to start looking for alternative export markets or ways to increase penetration in the home market.
• Firms that are part of the supply chain for multinational concerns will need to be vigilant. Car manufactures, pharmaceutical companies, international banks and others, that have based their operations in the UK as a spring board to the EU markets, could possibly reconsider their options.
• If consumer demand in the UK hardens, the ability to pass on increased costs may become a problem for smaller businesses already coping with smaller margins and shrinking demand for their products and services.
• Finally, we may have face tax increases as the UK struggles to balance its books and repay debt.
Businesses will need to be on their guard. Businesses and individuals should be watchful and stay positive. There are small business owners who would say that they were held back by EU regulation and will now be free to explore alternative markets. There are others that will be concerned by any loss of access to European markets. In any event, it pays to trim your sails if a storm is forecast, even if it blows over.
Ten-point BUSINESS check list – In no particular order, our suggestions are:
1. Make record keeping a priority
If you don’t use accounting software, consider your options. In the coming years having ready access to data for credit control, cash flow and profitability will be key to your survival. This will enable you to email and automate sending of statements to clients and customers and balance your bank position.
2. Keep a close eye on credit control
Using accounts software will help, but also: review the number of days’ credit you offer; chase up outstanding debts rigorously; offer direct debit and credit card payment options; encourage payments by BACS.
3. Active management of cash flow
Set in place a regular, weekly or monthly review of your cash flow. Create a flexible cash flow forecast. Map actual cash flow as it unwinds and constantly rework your forecasts as circumstances change.
4. Active management of financials
Set in place a regular, monthly or quarterly review of your financial results: profit statement and balance sheet. Map actual results against budgets and constantly rework your forecasts as circumstances change.
5. Keep in regular contact with your bank
Send your bank or other funders copies of your management accounts. Flag up areas of concern before they become urgent problems and seek their support at the earliest opportunity.
6. Sales and marketing
As part of your reviews keep a weather eye on the prospects for future sales. Replacing customers in a competitive, and perhaps price sensitive environment, will require active marketing. Consider strategies to sell more to your customers. It should always be easier to develop more business with existing customers than seeking out new customers.
7. Manage your costs
Consider alternative suppliers for goods or services you purchase for resale. Review overheads and cancel unwanted or unproductive services, look for less expensive alternatives.
8. Review capital expenditure
Now may not be the best time to invest in new equipment for your business unless it improves your chances of surviving the period of uncertainty we now face. Planning is key and should include consideration of funding.
9. Review personal expenditure
Until the effects of our exit from the EU are known entrepreneurs would be advised to minimize their personal withdrawals from their businesses.
10. Take professional advice
We want our business clients to ride-out the period of uncertainty that we may be facing. Whatever our political beliefs, or the assertions of those who portend to lead us, it is our endeavors, the steps that we take in the coming weeks, that will make a difference. Actions will always speak louder than words. Take advice. We are ready to help and committed to your long term success.