How will Brexit affect your business?
Brexit along with Trump have been top of the news for some time now…so how will this affect your business?
Well this depends.
The Bank of England got it wrong, as did many economic and financial pundits, so how would I know?
Well like most I don’t know absolutely.
So what’s this article about then, if I ask a question and then answer it with more uncertainty?
I think that’s the real point, we can spend a lot of time and many spend a lot of money predicting this and predicting that, but in the end does it actually matter?
Well that does also depend…
In business, it always pays to plan ahead and to plan for the ups and downs of the economy where ever you are in the world.
So if you plan for some of what has been predicted, then should it not happen you will be better off, but if it does happen, then you will be prepared and fair better.
Inflation is the biggest risk
In my opinion inflation is the biggest risk to business in the future. However, as we all know inflation is a double edged sword.
On the downside, when inflation goes up, so do interest rates. So if your business has borrowed heavily during these times of ultra low interest rates, then you need to be careful.
So what can you do to protect yourself against the worst?
Well you can fix your rate with the bank, or consider splitting the loan between a fixed element and a floating rate.
The other side of this sword, usually inflation increases can mean a good economy too, although in this case the majority of the inflationary pressure is the currency movement. So your business may well benefit from higher inflation, as it wouldn’t be out of place to raise your prices.
Are there any other risks?
The other major risk to business, especially those that rely on imported goods, is increased costs. This is especially true for manufacturing companies where raw material prices are on the rise.
The affect of the drop in the value of Sterling has had a major affect on imported goods. For example, the white goods manufacturers put their prices up by around 10% last year, as a result of Brexit.
Commodities have been increasing in price too, which includes the cost of oil, and as the UK imports more oil than it produces, this will affect many costs linked to oil.
However, on the other side of a lower Pound is where companies export. A weaker Pound means your goods are cheaper overseas and could encourage overseas buyers to buy more.
This is one of the major factors on the significant rise in the UK FTSE 100 shares. These companies have income derived significantly from overseas.
Employment costs are another factor
Another consideration post Brexit is how this will affect wages costs.
Wages will potentially be affected in two ways. The first is through inflation, Where the cost of living increases, this will have a knock-on effect on wages, when staff ask for pay rises.
The second impact is what happens when our borders are ‘closed’? Well our borders will never be closed completely, but there will in theory be no more free movement of people across the border to Europe. This will mean that where the labour market has more flex and is more fluid right now, this will change post BREXIT.
The lack of ease of movement of employment will likely impact the supply and demand of staff within the UK.
What are the potential benefits of Brexit?
One of the other knock on effects of the low Pound is it has made it cheaper for tourists to visit the UK.
So if your business is affect either directly or indirectly through tourism, the lower sterling value is a good this for you.
It is also likely to affect the behaviour of UK residents, who are more likely to holiday at home. This is because the reverse is true for Brits, as it has become more expensive to travel now.
Less red tape is more likely post Brexit, as we leave the EU and the UK government unravels the law, as we no longer wish to follow once we exit. This is speculation at the moment, but my guess is that the UK government will want to make things easier for businesses in the future.
In summary, I think there’s no doubt that the vote to leave Europe will impact businesses in the UK. However, the extent of the effect will only show itself over time.
The affect on business will be different for each business, but careful planning will minimise the negative impact.