6 minute read
Brexit Advice for SMEs
CHANGE IS COMING AND PREPARATION IS KEY
Linda Harvey, EFM Associate Finance Director: Business Recovery and Turnaround Specialist - Supporting Manufacturers and SME’s through challenging times
“FAILING TO PLAN IS PLANNING TO FAIL” –WHAT DOES BREXIT MEAN FOR YOU AND YOUR BUSINESS?
Here at EFM, our team of Finance Directors and Business Advisors often hear SME owners saying; “Brexit doesn’t affect my business... or does it?” From our experience working with vast number of SMEs, one thing we know is whatever shape Brexit takes, it will have an impact on your business regardless small or big – you need to prepare for what is coming and take the necessary steps now. Failing to plan now ahead of January 2021 is planning to fail!
What will be the impact for businesses who trade with Europe?
Currently, 100% of UK-EU trade is tariff free. As a member of the customs union, UK exporters comply with EU rules that are standardised across the trading bloc. This enables imports and exports to cross borders freely. Should the UK leave without a deal, the majority of exports will face EU tariffs and customs checks – as the UK will be subject to ‘third country’ trading status. This could cause significant shipping delays that affect your goods delivery time, hence think about what “promises” you make to your customers – don’t promise something you cannot deliver! Your cost of product may increase and VAT may be less easy to recover or cost more in certain countries, impacting margins unless you review prices. In addition, there will be changes in how you account for VAT post Brexit and this may vary with different customers (consumers or business), distance selling rules and local EU country VAT registration requirements.
Commodity codes – don’t get this wrong!
After 31st of December, if you want to continue trading cross-border with the EU, then check you know your commodity codes. If applied incorrectly you will end up paying wrong duties! Make sure your finance person in charge is aware of it and factor it into your cost base and the financial forecast should there be any additional costs.
Understanding certificate of origin
There are 3 elements that are considered when establishing the right duty rate that must be paid on goods and these are; which country they are being imported to, what type of goods they are and where www.bita.ie they have originated from. The last one might not be as straightforward since there are 2 additional things to consider here; are the goods wholly obtained or produced in a single country? Are your goods made of materials from more than one country? This second option is more complex as there are additional criteria to consider too.
Compliance
It is expected that industry specific safety or compliance certification previously under EU umbrella might no longer be valid, this can prove to be time and cost consuming to re-certify locally. The UK has developed its own UK Conformity Assessed mark which may be required, as well as, or instead of the CE mark (e.g. goods bound for Northern Ireland still need the CE mark). Getting documentation accurate will ensure smoother transfer of goods across Europe.
As well as product compliance there are increased compliance issues around hiring EU nationals and sharing data under data protection rules – it is likely that many contracts will need reviewing and updating.
Supply chain
Take a look at your supply chain and evaluate the interlinked costs and dependencies. Short term, regardless of the EU-UK agreement, important to most businesses is certainty of supply which you can have some degree of control over by sourcing products within the UK or building some stock pile ahead of 2021. Longer terms, regardless of Brexit this might be an opportunity – for you to improve efficiencies and make savings as well as assessing any potential risks. For example, will border disruption push back lead times for a key supplier? Or will a UK supplier to you experience issues because their supply chain is overseas?
Furthermore, is the Covid impact going to add further challenges as parts of the world continue to open up and lock down at different times and in different depths?
Forecast cash flow and Funding Options
Currency fluctuations and credit risk post-Brexit are just one of the many factors that might affect how much cash is coming in and out of your business. Creating a number of cash flow forecasts based on different scenarios and fixing currency rates will help you identify and manage cash vulnerabilities over the coming weeks and months.
Furthermore, make sure everyone in your business understands the metrics that keeps you cash positive – i.e. booked hours, units shipped, value of the orders in and get the whole team invested in making that happen! Additional points to consider are whether cashflow challenges stop you building up stock and whether duty and VAT deferment can be obtained to ease cashflow. All of this needs considering in the context of existing loans, deferred payments and cash headroom.
Every business needs to ensure they have a healthy cash flow and enough working capital to cover day-to-day costs.
The disruption caused by Brexit might lead to delayed payment by customers and more costly, slower delivery of goods. Funding options like invoice finance can help you to cover cash flow gaps.
Talk to customers and suppliers
Businesses are changing their plans due to Brexit and this could have an impact on your business – whether they’re a key customer or a supplier. Get in touch and find out what their plans are. See if you can align your planning to alleviate disruption and don’t get caught out by them switching their business unexpectedly – perhaps look at localised customers as you may have become more competitive on cost and lead time versus EU & ROW competitors? In addition, if the deal with your suppliers/partners is no longer appealing then perhaps it’s the right time to think about other partners who are on the same boat with you and unite strengths? It’s better to plan this sooner rather than later.
What should I do next?
From construction to manufacturing nd product based businesses, every SME faces specific challenges because the devil is in the detail and to prepare for it speak to professionals who will go through this journey with you and make sure your business don’t suffer despite the challenges ahead.
HOW CAN EFM SUPPORT MY BUSINESS?
There are two things we can do to help you, because we know how to do it well
1. If your business needs a foothold in an EU country to avoid unnecessary Brexit hurdle, then we can help! Our network of finance specialists reaches from the UK into the EU, specifically Ireland. The EFM Ireland team has already helped some UK companies set up in Ireland.
2. If your business finances keep you awake at night and you don’t know where to start, then EFM can help. We support SMEs in preparation of business plans and budget, managing cashflow and working capital requirements, managing growth to maintain financial stability, business reorganisation and restructuring. But most of all, we understand that top of the tree is a lonely place and business owners need a sounding board when making difficult decisions.
