Insurance · 20 September 2017

Brexit future-proofing means engaging with new markets, suppliers and customers

It's time to start Brexit future-proofing
It’s time to start Brexit future-proofing

When things are progressing smoothly change isn’t always forthcoming – if something isn’t broken why fix it? However, with Brexit on the horizon – Brexit future-proofing is a great opportunity to step back and take stock of company operations.

While some businesses have benefited from the weak pound in the aftermath of the Brexit vote, others have found their margins have been squeezed much more tightly.

While the sterling issue has been fairly well reported, there seems to be a wait see approach to many other areas of business operations, with many business owners failing to address the wider issues – such as how recruiting foreign workers will impact upon their business, and whether it is time to invest in new technology and automation.

Brexit future-proofing is of crucial importance particularly around forecasting to enable a small business owner to battle the challenges ahead – pivotal if entrepreneurs want to make the most of upcoming opportunities.

To get an experts view of things, Business Advice spoke to Bivek Sharma, head of KPMG Small Business Accounting – someone who is well versed in the challenges young companies face.

What can SMEs expect in the future?

Bivek Sharma: The main thing is going to be the pound – at some stage it will settle down and reach a balance. Business owners need to plan around that.

We may ultimately end up with a weaker pound than we’ve had in the past, and there’s a cost to that – but there are upsides too for some businesses. It really depends on what side of the fence you sit on, and how you’re trading with Europe.

I do think it will be interesting, as there are a lot of businesses you wouldn’t even think are affected. Initially the noise is created by businesses with an obvious import or export relationship with Europe, but now slowly we’re starting to see other industries are involved – for example, the construction industry, which is beginning to see the cost of materials increasing.

I think it would be naive to think that we’re going to end up in the same position that we’re in now, in the free market. It’s probably sensible to assume that there will be some form of tariff and extra compliance, which will cost more. After that, it’s a question around how much more.

For me, I think small businesses should be planning for the worst case scenario. If we end up in a position relatively similar to the free market, that’s great. If not, at least we’ve planned for it before hand, and we have a contingency plan.

What can small businesses do to mitigate the currency risk?

BS: There are a few things you can do, the obvious being hedging so you buy your currency at a fixed rate so that your business isn’t exposed to risk.

On a more practical note, I think it’s a good opportunity to start looking at things like supply chains. There’s a number of things you can do such as renegotiating costs with suppliers to get more favourable terms, or passing on the costs to customers, although potentially that could make your offering less attractive.

You could even switch suppliers – a lot of the time small business owners find a supplier that for one reason or another is convenient, and they don’t really reassess that position. Now would be a good time to consider what would happen by switching to suppliers in the US, Latin America, India or China.

Is it wise for small business owners to put growth plans on hold?

BS: Some of the smartest businesses really thrive in uncertain times, and sometimes the more conservative business owners tend to sit on their hands a bit.

Historically, a lot of businesses might have decided to focus entirely on the UK and Europe because it’s easier, and I think it’s time to look at the wider market. By doing that, you spread your risk as well.

At the end of the day, we will carry on trading with Europe. There might be more compliance, but it won’t be the end of the world – we had European trade before the EU came into force, and we’re still trading with the rest of the world. It’s just about taking a wider view than just automatically thinking of Europe. Absolutely still do that, but be more diverse.

What other opportunities are there for SMEs?

BS: It could be much easier for us to strike trade deals with non-EU countries, so there will potentially be a freeing up of trade.

In general, I think Brexit should be considered as a great opportunity for SMEs to reassess and plan for the future.

As I mentioned before, the smartest entrepreneurs take advantage when periods of instability crop up – so start considering what could be gained, not simply lost.

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Letitia Booty is a special projects journalist for Business Advice. She has a BA in English Literature from the University of East Anglia, and since graduating she has written for a variety of trade titles. Most recently, she was a reporter at SME magazine.