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A Brexit Risk Assessment for UK-only businesses
A summary below. The full article can be found here
Did you know that in August 2018 the British Chambers of Commerce found two-thirds of businesses had not risk-assessed Brexit for its potential to harm them in the short term? This month RBS is launching a £2Bn Brexit Lifeboat fund for SMEs and big businesses are starting to implement their contingency plans.
But if you are a business that does not do any direct trade with any EU business, does any of this impact you? The short answer is that you will still be at risk of suffering from the volatility that is likely to surround and follow Brexit in 5 months’ time
Businesses that will be particularly vulnerable to volatility are those that have contracts with fixed prices and/or fixed delivery dates which extend beyond 29th March 2019. Those businesses should urgently consider how to insulate themselves against the short-term disruption to their activities that Brexit may cause.
The risks they should consider include:
- Supply prices may increase on or after Brexit: further devaluation; interest rate rises; oil price rises (market forecast); reduction in competition amongst suppliers if some suppliers leave the market; tariff, cost and administration increases for suppliers who import; competitive salary and wage increases; opportunistic price increases (as seen on the introduction of the Euro)
- The cost of finance may rise, due to devaluation and increases in base rate as well as a likely perception amongst banks that the environment for lending will have increased in risk.
- Particularly in the case of a hard Brexit, delays in bringing materials/goods in from the EU and increasing lead times (new border controls, additional admin costs and paperwork, tariff administration, insufficient capacity at UK ports / UK Customs personnel). Perishable goods are particularly vulnerable.
- A reduction in capacity through staff shortages: the UK currently has the lowest unemployment since 1973, immigration numbers will continue to fall, local wages and salaries are likely to rise and there may well be an increase in staff poaching between businesses
- Increasing supply chain risk: the same pressures will apply throughout the supply chain; wholesalers and aggregators may have increased pressure because of their direct import activities. Some of the supply chain may not be as well-prepared as you are and price, delay, cash flow and capacity issues could quickly remove the weaker players – are you depending on any of them for your own success?
- Reduced customer demand: Significant change leads to a drop-off in customer demand for many businesses. This may reduce cash flow or leave existing capacity and overhead unused and burning a hole in your pocket. How long will the reduction last?
- All or any of the above may negatively impact cash flow.
Many domestic-only businesses may be thinking that if the unexpected occurs they will simply talk to their customers and work a way through it. This is an approach that may work provided Customers are not themselves fire-fighting at the time and Suppliers remain reliable. With Brexit being so all encompassing, however, (and never having been tried before) it is unlikely that experiences from the past will be the best guide to how to navigate this future. Besides which, how did it go last time? What pain points could you have done without?
To help navigate the options, risks and opportunities that lie ahead, why not arrange a Brexit impact analysis meeting with senior colleagues? Perhaps bring in a professional 3rd party who can ask on-point questions, suggest alternative strategies and solutions and maybe help implement some things that can insulate your business from the unpreparedness of others.
My Inhouse Lawyer are well positioned to assist you navigate your current and proposed contractual relationships in the light of Brexit risks and to holistically build in protections and openings that might just bail you out of a tight corner if the chips are down. In the immortal words of Hill Street Blues’ Sgt Esterhaus: “let’s be careful out there!”.
For a conversation of the potential things your business could look at doing please email email@example.com or call Ed or Trupti on 020 7939 3959.