U.K.-Based Entrepreneurs Are Sleep-Walking Into Brexit
Many entrepreneurs don't sell internationally but Brexit is likely to have far-reaching ramifications that impact them in unexpected ways.
The U.K. is facing one of the biggest political changes millennial entrepreneurs will have seen in their lifetime but it doesn't appear that businesses are adequately preparing. Brexit is just six months away (as of September 2018) and it's unclear what it will mean for our relationship with the EU and the impact that will have on our trade with other countries. The Institute of Directors surveyed over 800 business leaders and found less than a third had undertaken contingency planning, half don't plan to do so and 8 percent had carried out their contingency plans.
Even at this stage, there are a variety of potential forms that Brexit could take, so there's a high degree of uncertainty in the impacts. The U.K. government estimated 8 percent of small and medium-sized businesses export to the EU and 15 percent are in the supply chain of exports to the U.K.
Duncan Brewer, partner at consultancy Oliver Wyman, told The Guardian, "Even if we had free trade deals with every single country outside the EU and went to no tariffs, there is no way things will be cheaper. It is still a negative situation for everybody." There are impacts that everyone across the country will feel: Household costs will rise £245 to £961 annually (according to Oliver Wyman's research). While this doesn't directly correlate to business expenses, it's likely that a higher cost of living for the general populace will translate to increased costs for business owners.
The Boston Consulting Group (BCG) found that 44 percent of small and medium-sized businesses expect additional banking costs to be absorbed by the banks in the event of a hard Brexit but this is unwarranted and more importantly, finance is likely to be less widely available. If you're in a business where cash flow is challenging or payment terms are long, this is something to consider and mitigate. The BCG says SMEs would potentially be "hardest hit ... Not only are they more likely to find their access to wholesale banking services restricted, but the cost of making adjustments, such as forming new banking relationships, can be material for them."
Even if your business doesn't sell internationally, Brexit is likely to have far-ranging ramifications that will impact it. So, what can you do to prepare?
1. Keep abreast of current affairs.
Entrepreneurs should be alert to the changes that are coming and how this can affect their business model. There are many ways to keep informed: Subscribe to government updates, read the news and entrepreneurial focused publications such as Entrepreneur and industry-specific media. Network with other business owners in your industry or who have similar business models. Bodies that support businesses, such as the Institute of Directors, Confederation of Business Industry and the Federation of Small Businesses will have useful and current guidelines, as well as networking opportunities.
2. Understand and plan for potential impacts on your business.
Assess your supply chain to determine how your suppliers and customers will be affected. What impact would a hard Brexit have? What about a soft Brexit? Are customers likely to squeeze you to do more for less? Could they go out of business? What would you do if they did? Determine the critical dependencies within your business and use them as a starting point for targeted questioning. Determine potential alternatives in the short and medium-term for your most critical assets.
The right course of action will, of course, vary greatly but resilience is important for any business in the long term, regardless of the format that Brexit takes. The Open University reports that "resilient businesses tend to have adaptable resources and processes that allow them either to avoid a disruption or to respond quickly to challenging circumstances. However, what makes the biggest difference is whether owners and managers are thinking strategically about these vulnerabilities and whether they are taking active steps to address them."
3. Explore diversification.
The option to diversify is available for those that sell goods, as well as services. The immediate option is to increase what you offer, but this can equally apply to other areas of business, such as the platforms you reach people on, types of contracts you offer or the range of customers you serve. Diversification is another tenet that increases the resilience of your business. The Harvard Business Review says organizations should "create a hedged portfolio. Just as financial institutions try to create portfolios of investments that will hedge one another's risks, companies can select an assortment of products or markets to reduce the overall riskiness of the business model."
There is a lot of uncertainty around Brexit but that's no reason to do nothing. This article is not designed to scare you but to alert you to the fact that Brexit will impact entrepreneurs, even if they don't export goods or services, so you need to get prepared!