KPMG · 19 September 2017

Brexit planning hinges on small businesses being a collective

Brexit planning for SMEs - advice from Bivek Sharma
Brexit planning for SMEs – advice from Bivek Sharma
Bivek Sharma, Head of KPMG Small Business Accounting, explains how small businesses are already feeling the effects of Brexit, and what they might have to expect in future.

he past year has been a real mixed bag for small businesses, with political and economic uncertainty dominating the headlines from coast to coast.

The decision following the referendum to pull out of the European Union last summer was expected to have a dramatic effect for many small business owners, but the reality is that there is no “typical” experience of Brexit. What has been a setback for some entrepreneurs has been a boon to others.

To get an overview of the landscape for SMEs in the UK post-referendum landscape, we caught up with Head of KPMG Small Business Accounting, Bivek Sharma.

What sort of effects are we already seeing from Brexit on small businesses?

The main effect is the weak pound, and clearly, we’re seeing that’s a good thing for some businesses and bad for others. If you are importing, the value of the pound is going to be reduced – suddenly, you’re noticing a huge volatility in your margins. On the flip side, for those selling in Europe they’re enjoying a sudden surge because they’ve become a lot cheaper.

Overall, investment in SMEs is still pretty good. The latest figures around business mortgages are still looking pretty healthy. There’s no obvious dip there, which would be a warning sign.

Small businesses are dealing with the obvious right now, which is the weaker pound. However, when you look at the overall picture, very few small business owners have really started to think about the wider issues. When you ask them if they have started any kind of planning around different trading agreements and tariffs – that’s the bit almost everyone has ignored. It feels like it’s business as usual for most small business owners.

Should SME owners be concerned about recruitment, post-Brexit?

The SME clients that are most concerned are those which are heavily reliant on foreign workers, or the free market. You tend to find things like the leisure industry, restaurants, hotels, agriculature and pubs that have been reliant on foreign workers are quite concerned, because payroll is probably their single largest cost.

I think those that are already in the UK now, are likely to be given permanent status going forward. However, potentially it’s going to become harder to recruit, because that supply could become severely limited.

Businesses have got to start planning for it. Business owners need to start thinking about what extra money they need to put aside for wages, and how that will affect margins. There’s no magic bullet, a lot of those businesses reliant on European workers may get stung.

Maybe for some small businesses, it’s time to start looking at technology and automation, and other ways to streamline the way they deliver services. For others, maybe it’s time to raise prices.

It’s about forward planning – assume it will cost you more, think about where you could be recruiting from going forward, maybe start trying to mix up the resource pool even now so that when the time comesthe impact on your business can be minimised.

How much of it is totally out of an SME owner’s control?

Downturns start when people get nervous about spending money and investing and growing businesses, suddently everyone is sitting on their hands and there’s this horrible domino effect.

Quite honestly, a lot of commentators said the Leave campaign, were it victorious, would have caused a huge recession. But, frankly, nothing that substantial has really happened so far. The SME economy and the wider economy have been relatively stable and we’re still growing albeit much slower.

The big question is, what’s going to happen over the next couple of years? I think if there’s a recession, all bets are off. But if we negotiated a sensible position and people can navigate Brexit in a way where it doesn’t have a massive impact it will be fine – but essentially, no individual can control it. It’s a collective thing, we have to behave in the way we have been doing, be resilient, and carry on with business with the support of future-proofing and planning.

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ABOUT THE EXPERT

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.

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