Business Planning & Funding

There is no ‘one stop shop’ answer for British businesses facing the uncertainty that the UK current political landscape presents. However, that doesn’t mean that there aren’t opportunities to leverage and risks to manage with an aim to provide a sound footing when Brexit finally lands.  Here we look at three core components that we believe owner managed businesses should consider in preparation for a ‘no deal’ scenario.

Foreign Exchange Fluctuation

Brexit has very publicly contributed to a demise in sterling.  The impact of which differs whether a business imports or exports its goods and services.  Whilst analysts continue to predict what might happen to sterling as a “no deal” unfolds what it’s safe to say is that this is a time for planning how to manage your foreign exchange exposure.  For larger businesses this may mean engaging with banks and financial institutions to explore foreign exchange forwards and hedges, or for smaller businesses exploring natural hedges driven by opening US dollar and Euro accounts and buying currency now
(if the rate works for their risk profile). 

Funding

The cost of Brexit (e.g. foreign currency) is likely to have a significant impact on the availability of capital and finance in the market place. As an example large foreign exchange fluctuations may erode profitability which in turn may drive covenant and head room pressures on existing facilities. Whilst this flags the need to plan ahead for managing cost uncertainty due to Brexit it also highlights the importance of engaging in open and honest conversations with business funders early in the process – flagging trading slow downs and volatility.

This early dialogue is really important as Brexit is changing funders needs in terms of the information flow to support owner managed businesses. These changes include a greater focus on secured lending and strength of balance sheets; to a desire to see Brexit sensitised financial projections as well as business as normal models; to a more challenging conversation when providing asset based finance on items such as overseas debtor books. This shows the importance for businesses to plan ahead when seeking funder support and consider what new information the business may need to provide in comparison to their last funding round.

Supply Chain

The biggest concern owner managed businesses we work with have post Brexit is the impact on customs and management of goods flow in and out of the UK.  Whilst this will inevitably give rise to tariff and duty risk, there are some key practical planning considerations that may assist in managing the associated risk. These may include assessing product lead times and working to gain a march on Brexit through over stocking or advancing products and services (where financially practical), and/or considering the potential of opening an overseas branch or office where business may run uninterrupted due to the absence of a physical UK border.

There is no crystal ball or magic formula but we hope the ideas above highlight the need to plan and think ahead for owner managed businesses to manage the risks, opportunities and disruptions that a “no deal” Brexit may impose upon UK Plc.

Brexit Checklist

To assist in your thought process we hope the following checklist helps trigger something relevant to the management and stewardship of your business:

  • Consider the impact on your cost position and market competitiveness from weaker sterling and how will you manage volatility
  • Put monitoring in place to provide early warnings to necessary stakeholders should there be any trading slowdowns
  • Confirm/change banking arrangements in preparation for times of volatility and change
  • Look at specific political and economical impacts on your particular industry and sub-sector
  • Look at funding methods and opportunities post Brexit, particularly if you or your stakeholders are reliant on EU funding
  • Assess structure of your business, will it still be appropriate and fit for purpose post Brexit