Now that the shock result of the EU referendum is sinking in with all of us, it’s time to start considering what Brexit might mean for business owners.
Firstly, it’s important to point out that the result does not mean an immediate exit from the EU. The first steps are for the Government to notify the EU that the UK wishes to disengage from Europe. Once that happens, negotiations will take place over two years to decide the future of the UK’s relationship with the EU. Only then does the UK officially cease to become an EU member, and any constitutional changes start to really take effect. Therefore whilst there are unlikely to be any immediate changes, uncertainty about the future of the UK is likely to continue for at least two years, which could result in a slowdown of the UK’s economic activity. However, it is important to remember that during times of uncertainty, whilst there may be risks, there will also be opportunities to take advantage of.
So, how might your business be affected? At this point, no one knows for sure, but below we list some possibilities of what might happen:
- In terms of the value of our money, if the pound settles at a lower level the cost of importing goods will rise. On the other side of the coin, exporters may benefit as their goods and services will become more price attractive.
- Finance. The uncertainty may encourage lenders to be more cautious when considering loans. If the cost of imports triggers inflation, then we may well see the Bank of England having to increase interest rates. Alternatively, in the short term we could see interest rates being reduced from their already historic low, to encourage consumer spending.
- Businesses and non-profit making enterprises that have benefitted from EU funding should start considering what their organisations will look like when this support ceases. Only time will tell whether the EU grants they received will be replaced with UK government grants.
- Businesses that trade in the EU need to re-examine their sales and marketing strategy for when the EU curtain finally falls. Exports may well be subject to tariffs, so it may be a case of looking at your sales and marketing strategy now and considering expanding into new markets.
- Firms that are part of a supply chain for multinational organisations will need to be vigilant. Certain companies have based their operations in the UK as a springboard to EU markets – those firms could consider relocating outside of the UK.
- Finally, we all need to consider the likely impact of any future tax changes to help balance the books.
With all this uncertainty, in our opinion, there are things that you should be starting to consider now in terms of your business. Here is an 8 point business checklist:
1. Look at your record keeping
In these uncertain times, it is imperative that your accounting systems produce accurate management information in order that you can produce meaningful interim figures to monitor your business performance.
2. Credit control
With robust accounting systems, a lot of the pain of credit control can be taken away. However, you should review your credit control procedures and consider if there are better ways to get your customers to pay you quicker.
3. Manage cash flow
Make sure you have a cash flow forecast, and you regularly chart actual cash flow against these figures.
4. Keep in regular contact with your bank
Make sure you send your bank accurate and regular management information. Face up to areas of concern before they become a problem by keeping the bank informed.
5. Sales and marketing
As part of your review, keep an eye on future sales prospects. Make sure you gain the right type of customer, and consider replacing those that are not contributing to your business. Don’t overlook developing sales with existing customers, rather than just focussing on new ones.
6. Costs and key suppliers
Managing costs and maintaining good relationships with key suppliers can help to reduce uncertainty in rapidly changing conditions. Having a control on costs and looking for alternatives will ensure you are always paying competitive prices.
7. Capital expenditure
Review your capital expenditure, considering whether this is the best time to invest in new equipment. Planning is key, and should include consideration of funding.
8. Consider profit extraction
Given the uncertainty ahead, it may be time to look at minimising the amount of money you take out of the business. A company with strong reserves will be in a better position to weather any storms.
Take professional advice. We, along with your other professional advisors, can help with the above. If there are any points that you would like to discuss with us, or, indeed, you want to use us as a sounding board, please do not hesitate to contact us.
Whilst the result was perhaps unexpected, we see it as a positive opportunity for you reflect on your business, and consider your strategies going forward in order to reach your goals.
As partners in your progress, we are here to help.
By Luke Wiseman – Witney office