As large corporates are busy executing their post-Brexit plans, such as cutting investment programmes and relocating entire teams to other countries, small-business owners are left wondering what the implications of Brexit might be for their companies and what they can do to improve their prospects in the new world.
Any business involved in international trade will feel the impact of the pound sharply depreciating against the major currencies. If you are importing goods or components quoted in US dollars (USD), the cost of your supplies has just gone up by 10-15%, eating into your profit margin. An intuitive solution is to raise the selling price to your customers, but you need to be careful whether your offering will still be attractive to them, particularly if you are in a competitive market. Therefore, it is probably worth investing in some market research to assess the current level of demand for your product or service.
If you are an exporter and quote your prices in USD, you are in a much stronger position. Your business will benefit from a weaker pound and you will have a choice of taking more profit or reducing the price of your offering without sacrificing your margins. In order to make the right decision, exporting businesses will need to understand how competitive their market is internationally and how likely they are to gain more customers by lowering their prices.
Companies exporting to Europe could soon be facing the prospect of the UK leaving the European Economic Area. If that happens, British exports to Europe would be subject to import tariffs, which will make it harder to compete against local European producers.
A lot of SMEs, particularly in the technology and professional services sectors, have been complaining for a while about the shortage of skilled employees in the UK and the difficulties of hiring talent from abroad. With Britain leaving the EU – restricting the free movement of people in the process – this problem could become even more pronounced.
Those looking to work in the UK might have to apply for a work permit – in the same way that non-EU citizens do currently – which can be a lengthy and expensive process for employers and employees alike. There is also no guarantee of an application being accepted because it depends on there being a skills shortage in an applicant’s chosen profession. Along with the anti-immigration stance of a significant part of the British population, this might dissuade top European talent from looking to work in the UK.
However, I personally believe that the UK’s reputation as one of the world’s leading tech hubs should stand it in good stead for years to come.
Access to funding
The meltdown in the equity markets, the fall of the sterling against other major currencies and credit agencies downgrading the UK are all informing a view among investors that investing in the UK has become increasingly risky. Similarly to the 2008-2009 crisis, the high-street banks are likely to be distracted by executing on their Brexit contingency plans, which include tightening their credit policies and reducing lending volumes, at least in the short term.
However, as the banks withdraw, alternative lending will likely grow in prominence and soften the blow for businesses that are seeking funding. With higher risk appetite, better data sources and streamlined underwriting, alternative lenders are better positioned to continue funding in a higher risk environment compared to the banks.
With the terms of the UK’s departure from the EU yet to be agreed, small businesses need to focus on making the most of an uncertain situation. But given their natural nimbleness and adaptability, this shouldn’t be too big a challenge for the majority of startups and SMEs. In fact, I’d even argue that they’re better placed to cope with a post-Brexit Britain than many of their larger counterparts.