Whether you are for or against Brexit, the air of uncertainty is starting to leave a bad smell.
No one can imagine what the post-Brexit UK business world will eventually look like. Even once a deal has been reached (or we crash out without one) a long period of uncertainty will ensue while the UK repositions itself in terms of trade deals and market access both with the EU and the rest of the world.
Uncertainty will prevail for much longer than most people realise. Brexit day may be the current milestone, but even when Brexit is decided one way or another, there will be long process of negotiations to determine trade deals and our transition out of the EU.
Whatever your views on Brexit, be warned, economic uncertainty won’t disappear on the 31st October – quite the contrary.
Are SMEs prepared?
A press release by the Federation of Small Businesses, (FSB), reported that small businesses are entirely unprepared for a chaotic no deal Brexit – only one in seven (14 per cent) small businesses have starting planning for a no-deal Brexit.
FSB National Chairman, Mike Cherry, said:
“If you sell your products to the EU, buy goods from the EU or if your business relies on staff from the EU, you now see this outcome as a clear and present threat to your business.
“It is deeply troubling that the prospect of a no deal Brexit is seeing many small firms shelving business decisions, pausing investment and more drastically, thinking about cutting staff. These businesses are the growth engines of the UK economy.”
The British Chambers of Commerce (BCC) report that a concerningly high number of British businesses still haven’t completed a Brexit risk assessment. A recent press release by BCC says:
“Political turbulence and ongoing uncertainty about the final outcome of the Brexit process is hampering business planning, making it impossible for firms to know what to prepare for.”
So, how exactly is this continuing uncertainty affecting SMEs? Let’s take a look at the growth challenges SMEs are likely to face in the post-Brexit business landscape.
Market access in a post-Brexit world
According to multinational professional services company, PWC, two thirds of SMEs in the UK want continued access to the single market and 67 per cent of SMEs say Germany is a priority export market.
The EU is one of our most important trading partners. The EU market covers 28 countries and currently offers free trade access to 500 million potential customers. For SMEs that only trade with the EU, the stakes are high.
Faced with a no-deal Brexit we would lose access to a further 40 free trade deals around the world as negotiated by the EU – says a report by the BBC. So far, only 13 continuity deals have been agreed between the UK and countries or territories outside of the EU.
“In the event of a no-deal Brexit, the UK would suddenly lose tariff-free access to these markets and it would have to trade under World Trade Organization (WTO) rules.”
The PwC survey found that companies in London and the South East were particularly anxious to retain EU single market access post Brexit (74 per cent and 72 per cent respectively), as were 73 per cent of Scottish SMEs.
The recruitment crisis
Fears about the impact of Brexit on the freedom of movement of EU workers has been a concern since we voted to leave the EU in June 2016. Glassdoor report that 72 per cent of HR professionals expect the competition for well-qualified talent to escalate.
Mike Knivett, Founder and MD of SME, Artemis Marketing, says:
“The competition for talent is definitely intensifying. But we are prepared by being the best at everything we do, including continued efforts to improve our culture and build a reputation as being an employer of choice.
“We are making employee engagement a top priority. We are braced for Brexit and confident we can weather any storm – we try to seek solutions, not get sucked into the negative dialogue around Brexit – we will continue to invest in our staff and seize on opportunities. We are confident our reputation as an employer will continue to act as a magnet for talent.
“We are also investing heavily in training our existing staff. Why look elsewhere when you have potential talent sitting right before your eyes.”
Investment and funding hurdles
Economic uncertainty around Brexit has already had a significant impact on UK businesses. The Credit Protection Association (CPA) report that investment in the UK has declined across four consecutive quarters for the first time since the global financial crisis in 2009.
The CPA also state that over a third of SME owners have already delayed plans to grow and invest in their businesses. Uncertainty delays SME growth and that is a big problem for the UK economy given that small and medium-sized enterprises make up 99.3 per cent of all private sector businesses in Britain.
Research on UK SMES by Dun and Bradstreet found that 67 per cent of businesses see the availability of finance as having a significant impact on their business success.
The government owned British Business Bank was set up in 2014 to make finance markets work better for smaller businesses. The recently launched Business Finance Council has been established to help small businesses access working capital and investment in post-Brexit Britain.
Speaking to The Telegraph, Mike Cherry, chairman of the Federation of Small Businesses, said that while the council was “undoubtedly needed”, it would require “direct input from firms on the ground” to understand how best to support SMEs through a possible no-deal Brexit.
Access to investment is a significant hurdle for SMEs through Brexit and beyond. According to the aforementioned Dun and Bradstreet survey, 65 per cent of SMEs believe that government could do more to support them.
Peer to Peer Finance News report that half of SME owners can’t afford to fund their growth. Accessing financial support will be vital for SMEs in the future.
UK businesses are adaptable, innovative and resilient, but these are unprecedented times. Business will carry on no matter what the Brexit outcome. How many businesses will fail as a direct result of Brexit is unknown.
For many the challenges will come thick and fast. There will be specific risks, as well as opportunities. To survive, business agility, keeping pace with tech, attracting and retaining talent, and contingency planning are key. Out of the ashes will come growth in some form or another. How bad the Brexit fall-out is when it comes to SMEs, we will just have to sit tight and wait and see.