How Food and Drink Entrepreneurs Can Prepare for Brexit Uncertainty
As the U.K. awaits imminent leave from the European Union, it is time to prepare for the uncertainty that awaits us. Consumer spending might feel the pinch under Brexit uncertainty, but we can be hopeful that the Lipstick Index that saw shoppers treat themselves to cheap thrills such as cosmetics and takeaway coffee during the recession will have the same effects.
The pound is still holding its ground, however, the potential weakening of Sterling against the Dollar in the aftermath of Brexit risks the possibility of significant rises in the cost of raw, green coffee.
The commodities market for arabica coffee has gradually decreased over the past few years. Most recently this has been driven by a bumper 2018 harvest in Brazil that lead to a position of significant oversupply. This has mitigated recent losses in the exchange rate but the market is now effectively bottomed out and therefore any further weakening of the pound will simply increase the cost of coffee, which will be exacerbated by any recovery in the coffee market.
Without undermining the scale of Brexit, it seems as though entrepreneurs and small businesses are not giving themselves enough credit for the resilience that they already possess. Yes, we are headed to uncertain, unfamiliar and unpredictable times, but is this not the climate that most startups prepare themselves for and find their feet in? Planning and a solid understanding of your finances have always been essential to a successful entrepreneur, regardless of the political climate.
In light of the times ahead, there are a couple of ways that food and drink entrepreneurs can prepare:
Audit your business against its reliance on the E.U.
It might seem like an arduous task to prepare, as is apparent for two-thirds of SMEs who aren’t making arrangements for Brexit, when there are many potential outcomes on March 29. However, it’s important for entrepreneurs to have a solid understanding of their business’s attachment to the E.U. This will undoubtedly be slightly easier for entrepreneurs and SMEs, compared to corporations, due to the size of their workforces.
Entrepreneurs must know how many of their employees are from the E.U. and any existing contracts with E.U. companies like the back of their hand. Make it a priority to have a discussion with the bank. Go through the possible outcomes of how any E.U.-based contracts will evolve and ensure that plans are put in place if there are any fluctuations in VAT after analyzing your supply chain. By checking if your business is eligible for AEO status (Authorized Economic Operator), it could also potentially reduce the risk of delays at the post-Brexit border.
Buy forward and take out futures contracts.
The best way to prepare for an increased cost of green coffee beans or other commodities is to buy forward. This means to buy in larger quantities in anticipation of a price rise.
Stockpiling has been a word thrown around in the media a lot over the last few months. Buying more stock at current spot prices (the current market price at which assets are bought and sold for immediate payment and delivery) and stockpiling supplies are often not feasible for entrepreneurs because of limited storage space and cash flow.
However, taking out futures contracts will also alleviate plenty of stress as the contract for commodities can be bought at agreed prices but delivered and paid for later. Arranging futures contracts like this will mean that you do not have to cram months of inventory into your storage space or worry about the aforementioned cash flow issues.
Small businesses account for 99.3 percent of U.K. businesses, making it even more so important that preparations are put into place for whatever outcome we face. As daunting as Brexit seems, it is reassuring to remember that entrepreneurs are known to be inherently agile. If you can carry a nimble mindset and business strategy over the next few months, then you can conquer other uncertain times too.