With the government’s recent introduction of the Internal Market Bill, Brexit uncertainty has kicked up a notch. While this type of brinkmanship isn’t unusual during a negotiation, the controversary has put into doubt whether the two sides can agree a free trade deal as the EU’s unofficial deadline of its October summit rapidly approaches.
As things stand, I believe what is known as a ‘thin’ (also referred to as ‘skinny’) deal is the most likely outcome. A thin deal would focus on facilitating the trade of goods at the expense of services, although it would allow scope for further negotiations in the future.
Companies trading with the EU will face the greatest disruption. According to the government’s transition portal, importers and exporters will need to register for an Economic Operators Registration and Identification (EORI) number, declare goods moving into and out of the EU and ensure they process the correct duties and VAT. If your company doesn’t trade in Europe, you should still check if any of your suppliers or customers could be affected by the changes.
Somewhat worryingly, a survey carried out by YouGov earlier in the year suggested nearly 40% of SMEs don’t feel ready for the new trading regime. That figure rose to 46% of respondents importing from Europe.
So how can your business prepare for the disruption?
First and foremost, review your company’s financial health. Even if you haven’t figured out the potential impact on day to day operations, make sure you come up with a cash flow forecast. Cash flow is key to survival, and if you think your business might need a cushion, act pre-emptively rather than reactively. The lending environment is generally favourable at the moment for SMEs, so take advantage to build up your working capital if necessary. Don’t leave it too late though- past experience shows us that lending dries up during an economic slowdown.
If your company relies heavily on the EU for suppliers or customers, then you could consider expanding into new markets. The government recently signed a trade agreement with Japan, and it’s hoping to conclude deals with some of the world’s biggest economies, such as the US and Australia. If you don’t already do business in these countries, then it’s worth looking into the opportunities they offer, especially as trade deals typically include incentives for importers and exporters.
You could also embrace digitalisation. The coronavirus pandemic has inadvertently reduced the cost of entering a new market. For instance, video conferencing has replaced the need for international travel. Here at Swoop, we virtually launched our Australian business during lockdown. Meanwhile, the capacity to accept online payments has become more important than ever.
The UK economy is facing a challenging period over the coming months. Not only does it have to deal with Brexit, but the furlough scheme, which has protected so many jobs during lockdown, comes to an end in October, and borrowers will have to start repaying emergency loans next year. However, doing whatever you can to prepare now should help your company survive and put it in a position to benefit from the upward trajectory we expect the economy to embark on in the second half of 2021.