Brexit won’t kill your business, but you might!
I’m certainly not going to get into any form of political debate as to the pro’s and con’s on either side of the “Should I stay or should I go?” campaign. But what I will say is, we had it coming!
The ‘inner 6’ countries first signed the treaty of Paris back in 1951, and the UK officially joined the European Community in 1973. However, only a year later, and labour were opposing the move and set about suggesting a referendum was required to re-negotiate the agreement, or leave! We didn’t, and so under the Maastricht Treaty we became founder members of the European Union in 1993.
My first big point here is:
“There has ALWAYS been dispute as to whether we should have joined”
Now let’s turn our attention to the 5 KEY numbers in every business! In every sector and every industry, businesses can be broken down to fitting into 1 of 5 categories:
1% of Businesses are doing exceptionally well, growing rapidly year on year and making huge profits, and a further 4% of businesses are doing very well.
15% of businesses are reporting more traditional, marginal growth year on year.
But 60% of business owners admit to struggling and 20% of businesses close every year!
The ‘bell curve’ of business growth, can clearly show that the majority of business owners are either struggling or failing, with only 20% doing either well, very well or exceptionally well!
From a National survey of business owners conducted less than 2 years ago, it clearly showed a significant difference in MINDSET between those who were doing exceptionally well and those who were struggling, and the same will be exactly true over BREXIT!
Those who were doing exceptionally well were like meerkats. They worked as a close-knit team, on achieving set goals. At any time, some of the team were responsible as ‘look outs’ keeping an eye on what’s happening outside of the activity, and constantly reporting back their findings. Whilst the majority of the team had their heads down and worked collaboratively and strategically at achieving the goals effectively and efficiently.
Those who were doing far less well were more like lemmings! Although surrounded by many others in the same boat as themselves, they worked independently. They continued to do the same thing day after day after day. They were easily influenced by others, and often rushed from one thing to another to another in the hope that ‘this’ was the next ‘big thing’.
“Most people think small, whereas I think big, and that automatically gives me an added advantage” – Warren Buffet
The Brexit Domino
Transportation: Many of the UK’s biggest businesses, and its most critical industries, are highly integrated with Europe. So how might Brexit affect the biggest players – and what will be the effects for those further down the supply chain?
Europe is the key market for the UK automotive industry. More than half of the cars exported from the UK in 2015 went to the EU, which was also the source of over 80% of imported cars.
Jaguar Land Rover, which builds a third of British cars, has warned that any new tariffs introduced as a result of Brexit would make its business uncompetitive and put jobs at risk.
The motor industry trade body, the SMMT, points to the risk of a 10% tariff on vehicles and an average 4.5% on components unless free trade deals are struck.
Carmakers are concerned not just about the effect on sales, but the potential impact on their complex supply chains that stretch across the EU.
Smaller businesses in the sector will inevitably feel the impact. The prospect of new tariffs and regulations poses a knock-on threat throughout the supply chain.
Food: The agriculture and food sectors also have complex supply chains that rely heavily on EU input. The UK industry imports almost half of its raw materials, a third of that from EU countries. So a Brexit outcome without a trade deal would leave importers – and consumers – hit by tariffs of up to 40% for some items. Where perishable goods are concerned, efficiency is key. There is also the need for agreements on security, transit, haulage, drivers, VAT and other checks.
Some UK suppliers may benefit as big retailers seek to source labour within the UK, though there are limits on the types of foods that can be harvested here. Large-scale on shoring of production would also require a solution to one of the biggest issues facing the industry: labour.
Food and drink businesses of all sizes are concerned about the impact of Brexit on recruitment. From farms to processing factories and catering firms, many smaller companies currently depend on EU workers.
Over half of businesses responding to a Food and Drink survey lacked confidence that they could fill lower-skilled and unskilled roles even in the run-up to EU departure. Without access to EU nationals, over a third of firms predicted their business could become unviable, and 17% said they would consider relocating overseas. However, half said they would seek to recruit locally, while automating production was a possible solution for 55%.
6 BREXIT questions to ask NOW:
Does your business plan stand up to Brexit?
- Look at your plans in the light of the predicted slowdown in UK economy growth.
Cancelling your growth plans in the face of uncertainty would risk giving your competitors an edge – but some refocusing might be useful. If you’re selling direct to consumers, which sectors and markets will offer the best opportunities? If your customer base is fellow businesses, could you gain by targeting a new sector that’s more likely to be resilient post-Brexit? It might be that international markets offer new opportunities that perhaps have previously not been accessible.
- How might currency volatility effect your business?
Sterling hit its lowest level in three decades after the referendum result, and fluctuation has become the norm. While exporters have benefited, importers feel the pressure of rising costs. Which camp do you sit in?
If you’re already exporting, you might want to try to increase your sales overseas to make the most of this advantage.
As an importer, you could speak to your suppliers to see if you can negotiate a deal that would lock prices for the medium term, if you haven’t already done so. Another option is to take a fresh look at suppliers in the UK – their offering might be more attractive in the light of recent developments.
- Will tariffs have an impact?
It is likely that we’ll see a hike in costs of compliance and customs for businesses trading with the EU. Some basic scenario planning can help you map the potential impact on your business.
It might be that you’re directly affected or you find that suppliers based in the UK, but sourcing raw materials from Europe, have to pass their costs onto you. Think about the impact of non-tariff barriers, too. Bigger administrative burdens could put extra pressure on your resources.
- How strong is your supply chain?
Talk to major buyers about their plans. If they decided to move out of the UK as a result of Brexit, what would that mean for you?
If you foresee cash flow challenges, explore the possibility of a supply chain finance programme with your biggest customers or may have to re-negotiate terms in light of pending changes.
- What does Brexit mean for your employees?
Consider what support and reassurance any staff you employ from EU countries might need.
Think about reviewing which protections and benefits are critical to you and your staff. Committing to keep these benefits, even if they are no longer statutory after Brexit, could boost employee loyalty and retention – and make you more competitive in future recruitment.
- Is there value in looking to markets beyond Europe?
Easy access has made EU countries an obvious choice for exporters, but there are markets further afield which are easy to do business with, rich in opportunity and very open to British goods and services. Australia, for instance, is among the world’s wealthiest markets. Singapore, one of the UK’s largest trading partners, is ranked as the world’s easiest place to do business, and India has been steadily removing trade barriers, while its economy is predicted to soar.
5 ways to boost your margins ahead of Brexit
Many small businesses remain confident about their prospects, despite widespread uncertainty over the outcome of Brexit. There’s no denying, however, that some Brexit factors could dent profits, from Sterling depreciation to the associated dip in the UK’s economic growth forecast and the prospect of trade tariffs with EU countries.
Here are five possible ways to make your business Brexit-proof by boosting margins now:
- Understand and cut your costs
The first step to increase profits is regular monitoring. When turnover is healthy, it’s easy to assume that profits are rising by the same degree, but your costs may be stealthily eating at margins.
Tackle excess costs in a way that won’t damage your business. For example, weigh up whether using a lower-cost component would reap benefits or simply alienate customers.
Equally, don’t alienate your employees by making them struggle with fewer resources. Ensure they understand the risks to the business, and seek their ideas on cost-cutting.
- Change your price structure
After cutting costs, raising prices is the most obvious way to increase margins. However, you may understandably be wary of taking this step at a time when household spending is squeezed. Bear in mind that people buy with an eye to value rather than price alone. Revise your products or services with added value that takes account of customer feedback and desires. Then, release them with an updated price structure.
- Get close to your supply chain
Building closer relationships with your major customers and suppliers can only help your business.
Regular conversations with your biggest buyers could help you become better informed about their own Brexit-related concerns and plans, as well as opening the door to renegotiation. Sell to your suppliers, too. Meet them and help them to understand the story behind your business and its growth plans. With confidence in your prospects, they’re more likely to be open to discussion about discounts.
- Cut your currency risks
The pound is weak and currency volatility seems to be the new normal. If you trade internationally, you’re exposed to the currency markets, which could hit your margins without warning. Foreign exchange services could allow you trade with more confidence, by locking in exchange rates for future transactions.
- Categorise your products
Take a close look at your products or services. Those that offer both high sales and high margins are clearly the ones to be cherished and developed, but the others could use attention too. Consider a price increase for products that sell well, but with lower margins. Focus your sales efforts on any products that offer high margins but low sales. You might decide to jettison your low-sale, low-margin products – but consider using them as a loss leader first.
In conclusion, the decision to leave was made almost 18 months ago, and whether we voted to stay or leave, the wheels are in motion and it will happen. Remember, there are 5 categories of business in every industry and every sector, and whilst the majority aren’t doing so well, (they often stay in BED – Blame, Excuses and Denial) the minority continue to do well.
I say, “be more meerkat!”