Finance

Finance

While businesses may face financial challenges, it’s important to consider alternative options and build finance resilience, having efficient and effective financial management to achieve business objectives

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

Sterling fluctuations

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.

VAT changes

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.
 

TO DO LIST: Preparing for a possible No Deal    

General

If you import or export 

  • Watch HMRC’s hour long webinar about 5 key areas UK businesses must be aware of to keep trading goods when the UK leaves the EU       
  • Review UK Government’s publications on Trading with the EU
  • If you are an importer or exporter you must have an Economic Registration and Identification (EORI) number to continue to trade with the EU. If you don’t already have yours, you can get an EORI number on GOV.UK. Having an EORI number is just the first step to continue to import or export. Follow these import and export processes to trade with EU and non-EU countries     

If you transfer personal data 

If you provide services or operate in the EU

If you employ EU citizens 

If you sell manufactured goods

If you are involved with intellectual property or copyrights

     
UK Government’s full list of EU exit information for businesses can be accessed here.        
 


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