Brexit has served to highlight important finance considerations for British businesses. To navigate through this period of flux, SMEs will need to ensure financial resilience through actively managing multi-currency budgets, cash flow and projection, currency management, optimisation of their capital structure, and ensuring that appropriate types of funding are utilised.
Organisations will need to proactively manage their finance function and take a strategic, commercially-minded future focused approach, rather than using retrospective reporting and compliance. Planning for Brexit creates an opportunity for companies to better structure and integrate their finance function, so that it takes a more prominent role in the running of the enterprise.
Possible Opportunities and Challenges
Recent movements in the euro-sterling exchange rate has been exacerbated by the political uncertainty surrounding Brexit, directly impacting the bottom line of some businesses. The lower sterling value has directly impacted importers’ profit margins, whilst exporters may see benefits as they become a more attractive option to foreign buyers. Not only Euro exchange rates will affect businesses, consider also, for example, the increase in digital services which are often billed in US dollars. You can pre-empt difficulties around the value of sterling by establishing what your break-even exchange rate is and looking at cost modelling techniques to provide some certainty. Consider alternative options to source inputs from new suppliers or import through other non-EU countries with more favourable rates to mitigate risks.
There is a possibility that the UK could leave the EU VAT area following Brexit, which would result in import VAT being payable at the border for goods imported from the EU. These additional costs will need to be considered in financial planning and ways to mitigate potential cash flow implications. Businesses trading in services may need to register for VAT or appoint a fiscal agent in every EU member state where they supply customers.
Impact on cash flow and forecasts
With fluctuations in interest rates, sterling weakening amid Brexit uncertainty, and potential changes to fixed costs and cost volatility, businesses may need to review their cash flow and forecasts to mitigate the impact on business margins. In addition, key areas of EU funding will likely be withdrawn, with the future UK driven funding schemes currently being uncertain. Effective cash flow forecasting will be critical to ensure active management of funds and particularly important for identifying net currency exposures. Forecast monthly surpluses or foreign currency will help to mitigate the impact of exchange rate fluctuations on business margins.
Pricing with key customers and suppliers
As a result of the potential changes to fixed costs and cost volatility, businesses my need to review their pricing to ensure they remain competitive. Conduct research to understand market orientation and customer segments to ensure pricing remains competitive for key customers and/or suppliers. Maintain strong relationships with customers and suppliers through open communication and aim to work together to identify ways to mitigate impacts. Seek new and alternative ways to provide added value to offset price increases.
UK Government have released a series of technical notices which are available on the GOV.UK website including:
- Accessing public sector contracts if there’s no Brexit deal
- Accounting and audit if there’s no Brexit deal
- Accounting for import VAT
- Banking, insurance and other financial services if there’s no Brexit deal
- Changes to Companies House forms in the event of a no deal Brexit
- European and domestic funding after Brexit
- European Investment Bank Group financing if there’s no Brexit deal
- Handling civil legal cases that involve EU countries if there’s no Brexit deal
- Leaving the EU: advice for SMEs
- Merger review and anti-competitive activity if there's no Brexit deal
- Operating in the EU after Brexit
- VAT for businesses if there's no Brexit deal
- Changes to deduction of tax on interest, royalties and dividends if the UK leaves the EU without a deal
- Status of conformity assessment bodies after Brexit
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