With the government‘s long-awaited White Paper now published (a 98-pager which sets out the sort of relationship the UK wants with the EU after Brexit) and debate on the Chequers deal in full swing, many businesses are trying to plan a course for what might lie ahead come 29 March 2019.
Preparing for the unknown
Less than a third of UK business leaders have carried out contingency planning on Brexit, according to a survey this summer by the IoD.
EU & Trade Analyst at the Institute of Directors (IoD), Claudia Catelin, said that of those IoD members that were contingency planning, most are using a no-deal scenario as a baseline outcome to prepare for. But, she says, such as scenario involves “many unknown unknowns which make even this planning difficult”.
What is clear to businesses though, long-accustomed to Brexit uncertainty by now, is that uncertainty means currency volatility. This makes it more important than ever to be smart when it comes to managing currency for your business. You can start by taking the simple step of remembering to buy currency for planned business trips whenever the Pound is having a good day – sign up to our Rate Watch service and we’ll keep an eye on your chosen currency for you.
“Wait and see”
For Amanda Thomson, founder and chief executive of prosecco and champagne producer Thomson and Scott, adopting a wait and see approach is the only pragmatic solution. She says: “We’re not a big corporate that needs contingency plans. We’re small enough to react to the facts as and when they materialise.”
However, she has thought through the impact of various scenarios on her business. In a no-deal, “there would be no short-term disruption,” Amanda says, as Thomson and Scott has stock in the UK to resolve short-term demand, and also stock in the EU for international demand.
In the medium term, she says: “We could explore the prospect of setting up a business in the EU – for tax reasons, the Netherlands may be advantageous, for example – and our product could be shipped using this subsidiary and continue uninterrupted.”
Fleet-footed businesses like Thomson and Scott can quickly adapt to changing conditions and can find opportunity amid uncertainty. For example, you may find that your exports are now more competitive than those from other countries as your products will have become cheaper due to the weaker Pound.
Small vs medium
Simon Hart, lead Brexit partner at global professional services firm RSM, says there’s a difference between the wait-and-see approach being taken by smaller firms, and middle market businesses, which are reviewing the market and often taking the following actions:
- Looking to expand into non-EU markets
- Adjusting pricing for potential import or export duties and costs
- Reviewing supplier contracts
- Reviewing the status and rights of their existing EU workers
- Reviewing customer contracts
- Taking measures to increase efficiency and productivity
- Increasing local recruitment
- Establishing a branch or subsidiary within the EU
- Lobbying the government
With only six months to go before we officially leave the EU these are the steps you should be considering:
- Pass on currency risk: If you are a British company with customers overseas, make sure you invoice them in Sterling wherever possible so that currency risk and conversion costs are absorbed by them.
- Staff retention and engagement: There might be a skills gap post-Brexit. Look at forms of motivation and reward, and keep communicating with the team to let them know management are on top of things. Also consider talent pipeline and succession.
- Plan for currency volatility: Use forward contracts to lock in a current rate for transactions up to one year in advance and draw from the agreed amount to make transactions throughout the year at the set rate.
- Capital investment requirements: Interest rates are still low so consider medium-term investments that will make you more productive and competitive.
- Support: If looking to expand into new overseas markets, contact Department for International Trade representatives in your region for support. They help business to grow and export in over 100 markets throughout the world.
- Supply chain: Map out where you sit in the supply chain for your product; consider your exposure to upstream change and downstream change. What’s the flow of materials in and out of the UK at the moment? Which ports are currently used and what’s their capacity? Consider if you should be increasing or decreasing the import and export of certain goods or looking at creating new supplier relationships as a backup.
- Stress test your balance sheet: Model “what if” scenarios. What if customs delays increase lead time over deliveries? Will you need to hold more stock? What’s the increased working capital requirement to finance that?
- International payroll: If you run events overseas, manage film shoots, organise travel tours or work in an industry where you rely on casual staff for short contracts outside of the UK, consider using a prepaid currency card to manage the funds you need to pay staff. With the FairFX Expense Card and Platform you get great rates overseas and you can stay in control of staff expenses.