Brexit Planning – a Practical Guide
Planning for Brexit – a Practical Guide
The Brexit agreement proposed this week may be encouraging for some. Whatever the outcome however, there is one certainty and it is that things will change. Many businesses will be impacted either directly or indirectly and we need to understand what that means. There is a high level of complacency right now. Only 50% of Irish SME’s have given sufficient consideration to the various factors that matter. And I fear that might not change much after this week’s news.
I also appreciate that for many of us, the only impact we’ve seen so far is currency fluctuation. For exporters to the UK, the drop in sterling has eaten into margin (i.e. if the supplier has taken the hit) or made them more expensive (if they passed on the increase to the customer). But Brexit is not just about currency fluctuations! Outlined here is the advice that I received from Anne Finnegan, Head of Customer Brexit Strategy at AIB Bank..
Brexit Impacts and Risk Assessment
• Currency. The drop in sterling is already a hot topic that you may be well used to. But in a post-Brexit scenario, experts anticipate a worst-case scenario where the euro and the pound are equal. For narrow margin products like food, that could potentially swallow the full margin.
• Tariffs. If the UK doesn’t stay in the common market, then tariffs may apply to your products, whether importing or exporting. I don’t wish to scare-monger but The World Trade Organisation (WTO) indicates that some food product tariffs can be as high as 60%. Imagine the impact if that were true for you?
• Delays. Paperwork and customs controls for those that have never traded outside of the EU will present a significant learning curve. That’ll require new skills, extra cost and require time. In the meantime, how would such delays effect lead times? What about VAT at entry, shelf-life dates, stock levels requirements and working capital?
• People working cross borders. If you are near the border and have people living or working on the opposite side of the border, what will that mean for employment laws and taxes?
In summary if you trade with the UK, you may well be challenged with extra cost. You may choose to pass this on to your customers. If you do, what will that do your competitiveness? If you don’t pass it on, how can you make up for that margin loss?
Steps to Take
All of the experts and agencies are urging us to use common sense and plan ahead. But there aren’t enough of us doing that. Until we know for sure what deal will be agreed, just like Andrew Ingredients in the case study below, we should at the very least start exploring the risks and scenarios.
1. Savings. If you choose to absorb the extra cost to remain competitive, then where might you make savings elsewhere? Can you do it in your product mix, general overheads, sourcing, people, technology?
2. Location. Is there a viable option for having a UK registered entity? Andrew Ingredients is a Northern Ireland based entity with 40% of their business coming from the south. They investigated having a base in the south and decided on other options instead.
3. Working capital. If you need to increase stock levels, or perhaps invest in new facilities or technology, how will you finance that? Have you considered the impacts on your working capital? “We have just launched the AIB Brexit Ready Check, which is a simple online tool for SMEs to check in less than five minutes how Brexit may impact their business. On completion, they will get a risk assessment which will help them kick-start their planning for Brexit” said Anne Finnegan.
4. Explore alternative markets. Whether you are importing from or exporting to the UK, do you have any other alternatives within the EU, where all of these risks do not apply? If you do change, what other unforeseen risks does that present, such as language, lead times, legal, travel and freight costs?
5. Talk to your suppliers. Even if you are not directly importing from the UK, you need to engage with your suppliers in case they are. You may be very organised in your planning ahead, but they might not be.
6. Your people. What new skills are needed? What are the legal implications if you have people either living or working on the other side? What are the travel requirements and border controls likely to entail?
7. Your customers. Talk to your customers now. Share your thinking with them to reassure them of your intentions to maintain your current service levels regardless of what happens. If they are already planning, do their plans include you?
The Last Word
I have chaired and spoken at a number of events recently in an attempt to inspire businesses to start planning. Those that turn up are already converted. But regardless of whether you are directly or indirectly impacted, if you haven’t taken time to explore and assess your risk, then it might come back to bite you. There is so much help available to you from concerned entities, such as your own bank, InterTrade Ireland, Bord Bia, Enterprise Ireland and more. Don’t be seduced and complacent with the news this week. Check them out!
Alan O’Neill is Managing Director of Kara, specialists in strategy, culture and people development. Go to www.kara.ie if you’d like help with your business.
Alan is author of “Premium is the New Black”.
© Copyright. Alan O’Neill. All rights reserved. 2018