How SME’s should prepare for the worst case outcome on the final approach to Brexit’s March deadline?
There is no doubt in my mind that the madness of Brexit will be captured in story and song for many years to come. Whether it be Boris Johnson’s top 10 best-selling distractions of the British people or David Cameron’s best-selling novel ‘Asleep at the Wheel’, the resulting laughter will not dull the pain of exposed businesses who have to deal with the fallout of a no deal exit by the UK from the EU.
So, with such political instability setting the stage for a no deal exit from the EU, what does small to medium enterprises have to worry about after the March deadline? I submit that smaller businesses, in particular, should prepare with some common sense actions to reduce that worry about the risks posed by Brexit to their business. Those preparations should include the following:
Quantify your direct exposure by reviewing your sales ledgers to see how much revenue is generated from doing business with UK customers as a % of overall sales revenue? How much of the UK ledger is > 90 days overdue along with current sales provisions as a % of the overall sales per month?? Assess if you are reliant on UK customers, how quickly you get paid and what drain continuing relationships will place on your profitability through reserving for trade credit, bad debts, FX, etc?? Also, what gross profit margin do you have on your product lines going to the UK? Will they by product line be able to absorb such losses or will they need to be withdrawn from the UK market post Brexit?
Import tariffs are back. Check your tariff guide for UK imports and exports to understand your level of supplemental cost per sales transaction going to the UK based over the prior 12 months by product. Aggregate the tariffs (i.e. by product SKU * product volume) per month so you can see the overall cost of a product been sold to UK customers at current prices pre and post Brexit.
Supply chain. If you use 3rd party supply chain vendors, check with them on price rises post-Brexit and if any increase in price is associated with their routes continuing to pass through the UK to a destination country?
FX exposure. Check your business’s use of GBP and can you trade in alternate currencies. Will your vendors trade in a cheaper currency for you? Understand your cost of doing business in GBP and bear in mind that the currency is set to become temporarily unstable compared to prior performance over the next 18 months.
Geo-Politics. Monitor the Brexit debate finding a way to wash out the chicanery and nonsense that comes daily from political quarters. If the actual result is a no deal, how will it unfold in terms of protectionism? Will EU react by upping import tariffs?
Security. There is a baffling ignorance amongst British politicians on the importance of the Good Friday Agreement and how peace in Northern Ireland is underpinned by it. Will a no deal exit lead to breaching the Good Friday agreement and return Northern Ireland to the bombing, murders, and terror? If so, is your customer base going to continue to do business if shipments can be intercepted, delayed or stopped for security reasons? If this happens, do you have the resources available to insure against such losses? Will such breakdowns in security once again find their way to the UK who’s politicians seem to have very short memories on how disruptive the troubles were in Northern Ireland and the UK.
A good way to discuss the above and quantify the risks is to get a company working group together and break out the issues raised in the above areas for starters. Some risk management tips for your process are as follows:
SWOT Analysis breaks out Brexit for your business in terms of its Strengths (external good points), Weaknesses (external bad points), Opportunities (for your company) and Threats (to your company). Map them out on a 4 quadrant chart in a group session and start building your risk register from there validating your assumptions and altering your risk picture as you go.
Risk Register allows you on a spreadsheet to quantify a risk element in terms of low to medium to high risk and its likelihood of it happening (probability) along with its impact on your business.
The case for Brexit forced on the British people via an aggressive campaign led by the UKIP party transformed public fear already present, into outright anger at the EU. The UK government’s embracing of this position is arguably one of the biggest mistakes ever made. This should not sink your business once you take common-sense precautions and continue to trade to your potential. Keep a keen eye on world events.