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Why SMEs must futureproof themselves now for Brexit

Many SMEs think they are ‘too small’ to be troubled by the effects of whatever final Brexit arrangements are made. Here, Funding Nav founder and business author, Stephen Sacks, explains how they are the organisations most vulnerable to whatever storms lie ahead and how they can – and should – repair the roof while the sun is shining.

 

Brexit has accelerated the pound’s 50-year slide against the dollar, from a value of $2.80 in the sixties towards inevitable parity.

It also turns up the volume on an alarm bell telling the UK’s commercial sector to take an increasingly strategic outlook as we near departure from the EU.

Whether this is the now expected hard Brexit or a gentler process, being wrenched from the world’s largest trading bloc will have a truly monumental effect on commercial activity.

Giant economies

And, putting aside the endless claims and counter-claims of the pro-Brexit and Remain camps, we simply cannot instantly replace the revenues and convenience of trading with sophisticated giant economies who are our nearest neighbours, like France and Germany, with far-flung commonwealth countries, such as Cameroon and Belize. And that’s even if we could just switch to a neat ‘alternative arrangement’ with the Commonwealth – which we can’t.

The idea that we will be in some way liberated to seek out trading opportunities further afield than across the channel is also ridiculous because those opportunities always existed and we were always free to exploit them. It’s like amputating your right arm in order to free up your left arm to become so much more able than both of them were before!

Powerful drivers

Add worsening skills gaps, the UK’s stubbornly persistent bottom place productivity ranking among G7 nations and ever more dizzying technological advances to the mix and it is clear that a series of powerful drivers is accelerating us towards dramatically changed trading conditions.

This means that every business must prepare by trying to anticipate them then adapting to meet the challenges. For SMEs, in particular, who lack the critical mass and cash reserves to buy wriggle room if sudden, seismic adversity strikes, such planning is simply a no choice scenario

Ironically, though, many of those likely to be hit first, worst and longest still have little idea what is coming, let alone what they can do to survive the upheaval.

Futureproofing

And anyone who needs convincing of the dire imperative of futureproofing themselves should take their lead from the big boys. The really big boys. When the likes of Jaguar Land Rover, Airbus and BMW warn that they will pull out of the UK if a favourable deal is not reached with the EU, it is time for everyone to act.

Because, despite their liquidity, massive skills bases, bulging order books, they are listening to that alarm bell and they are preparing for massive change – making arrangements to deal with all possible scenarios.

So what strategies can SMEs, start-ups, micro-businesses and entrepreneurs adopt to best insulate themselves from the adverse effects of Brexit and capitalise on the opportunities it might present?

  • Insulate against the possible logjams and delays generated by no longer being a member of the European free trade area by resourcing solely in the UK, if possible. This includes raw materials, components, top talent and L&D services.

However, do bear in mind that no company is an island and this may not be as clear-cut as it used to be. Increasing global integration means many manufactured products require raw materials or other components from abroad. A good example of this is Airbus which makes wings in the UK but constructs them in Toulouse.

The massive skills gap and staff shortages experienced by most sectors – a situation deepened by the prospect of Brexit – make effective domestic HR resourcing even more important. This is particularly so as it has already prompted an exodus of skilled EU workers, while those from Eastern Europe no longer see the UK as a destination of choice.

This has created a predatory recruitment environment where companies compete for staff as well as orders, with top players never more aware of their marketability – and never more willing to sign up with a competitor that offers better terms.

The next decade will see 13.5m job vacancies but, as things stand, the staffing pipeline will only be able to deliver seven million market entrants.

As such, employers must have robust attraction and retention methods to make them the natural choice for the best people. These include golden handshakes and handcuffs, relevant and top-notch training and development, proper career progression and stakeholdings, benefits and perks.

  • Embrace the pound’s devaluation for the powerful commercial opportunity it is. Firstly, it has slashed the cost of exported goods and services, boosting both demand and margin for British overseas traders. I work with a drinks business whose global sales more than doubled immediately after the Brexit vote as their customers enjoyed a 20%+ price reduction.

Specific advice really depends on a business’ situation but generally, firms should grasp the devaluation advantage quickly whilst it lasts and get on planes to make foreign sales while Brexit’s impact is assimilated.

Devaluation also hikes the price of imports, which makes domestically produced alternatives more attractive. Consider whether your business model and growth plan can be sustained by working solely with UK customers. If so, you will be untroubled by the border friction of customs checks and tariffs. And if you can be non-reliant on imported materials/components (see above), then so much the better.

  • Hedge against current contracts, so you don’t get caught short supplying something at a loss. Sterling is subject to huge speculative pressures whilst so much uncertainty exists over the country’s trading future and therefore its value could yo-yo wildly short term.

If a contract taken in a foreign currency at a high rate of exchange is fulfilled and paid at a low rate, then the margin could be severely hit or even destroyed. As such, always buy a forward contract to protect the downside risk and eliminate the worry of currency upheaval when exploiting overseas markets.

It won’t be easy. Nothing worthwhile ever is.

And there is little more worthwhile than surviving and thriving, so gearing up to becoming accustomed to international markets always being susceptible to uncertainty and sudden powerful disrupters is the brave new world for all of us.

For more guidance on how to navigate the challenges of Brexit and beyond, Stephen Sacks’ book Reboot your business is published by Compass and available to buy at Amazon and WH Smith now.