With UK voters providing a clear mandate to the government to begin the process of leaving the European Union, what is likely to happen over the next few weeks that will affect your business?
As he announced his resignation outside 10 Downing Street, outgoing prime minister David Cameron reassured the public that the outcome of the referendum would cause no immediate changes to the movement of goods and people in and out of the country. Minutes later, governor of the bank of England Mark Carney promised his institution was well prepared? for the period of uncertainty and adjustment.
(1) Imports will be expensive
With the pound losing ten per cent of its value overnight, the purchasing power of British small business owners who buy stock from the Far East or Europe has diminished dramatically. If your business has reserves of other currencies, using them rather than buying foreign currency at current prices could help you whether the storm. For those who can’t do that, consider trying to negotiate discounts with foreign suppliers to take the bite out of currency movements, but be aware that a decision about whether to take a cut to profits or pass costs onto consumers may be inevitable.
(2) Exports will be in demand
On the flipside, weak sterling means that British goods will suddenly have become much cheaper for foreign buyers. If you’re at the helm of a small digital business, this could cause an immediate spike in demand, so ensuring you have the staffing and stock levels to cope with the change could be a good idea.
(3) Finance could be tricky to come by
With shares in big traded companies taking a tumble, and volatility likely to continue for as long as questions remain over the agreement to be negotiated with the EU, the price of gold has risen globally, which is typically seen as a sign that investors are shying away from risk. This could filter through into crowdfunding and p2p finance, or impact on young companies seeking angel investment if investors put venture funding on hold. Moving to extend your business overdraft or agree credit lines with suppliers could be beneficial, but might also be difficult.
In the longer term, both Cameron and Carney highlighted that what happens will depend on the negotiations about the UK’s exit conducted by the next prime minister:
(4) Stifled consumer demand
David Cameron indicated that he would be handing the responsibility of invoking Article 50, the procedure for formally ending EU membership, to the winner of the Conservative leadership contest, meaning that the legal changes which will take two years are unlikely to start for months. But if market jitters continue and share prices remain depressed, consumers could put off big purchases or cut down on luxuries like eating out. Having a marketing plan in place which will allow you to promote affordable options for your customers could help mitigate some of the pain, and being supportive of employees experiencing financial problems may be necessary.
When Britain does complete the process of leaving the EU and negotiating a new relationship, Leave campaigners promised voters that Europeans currently resident in the UK would not be forced to leave. But it is almost certain that restrictions will be placed on new immigrants from in and outside Europe.
While it seems likely that whoever is elected to the Conservative leadership over the summer will be aiming to negotiate a free trade partnership with the EU, changes to agreements with the rest of the world could see more significant changes, because Britain will no longer be able to benefit from the free trade agreements negotiated by Brussels with other trading blocs around the world. When this happens, British goods could fall in competitiveness in other countries around the world, and small business owners may need to consider focusing on trying to grow domestic demand as exporting becomes harder.