A few months ago it seemed there was broad consensus that some sort of transitional deal was certain, giving access to the European Single Market for perhaps as long as two years after the split. More recently, government rhetoric has made the prospect of exiting in 2018 without any replacement trade deal seem more possible – and the uncertainty has hit those attempting to do some Brexit planning.
While there is a big difference between trading within the Single Market and outside of it (essentially on World Trade Organisation rules), those intending to do some Brexit planning can start by managing risk and identifying opportunities. One of the most important things to do is to plan for the most likely scenarios.
(1) Undertake a thorough review (due diligence) of all aspects of your business in order to identify areas which may be affected;
(2) Try to anticipate broadly what might happen in the different potential scenarios (particularly whether the UK remains within or outside the customs union);
(3) Based on the likely scenarios, decide what measures you could take now to mitigate the current or likely future effects, what you can do once the route is agreed and what you can do once Brexit actually happens.
Your Brexit planning may not yet be full of details, but it is important to get the review under way, meaning you simply have to update it as the political situation moves on. Your plan will of course be individually tailored to your business, but here are some general things to consider.
This is one of the main areas of concern for businesses, and one where many are already feeling the effects in terms of concern among EU nationals already employed, and increased recruitment challenges.
One area to cover in your Brexit planning is how an end of free movement (both in and out of the UK) may affect your workforce. Consider the total number of EU workers in your business, divided into skilled, unskilled and semi-skilled, and also the number of key staff working in the UK who are from the EU and their immigration status.
Steps you could take now to mitigate this effect include considering the potential options for recruiting UK nationals (so consider both training and recruitment strategies); the mechanics of hiring from outside the UK (EU and non-EU); and any technological alternatives that might be available.
Depending on the nature of your business, you may be more or less affected by changes in the regulatory framework, tariffs and border controls as well as exchange rate fluctuations. Consider:
• Your imports – what you source from the EU, what could be the effect of changes to tariffs and border controls and how could these be lessened? Are there steps you can take now to find suppliers based outside the EU?
• Your exports – if tariffs are imposed, how will you deal with the cost impact? Can you look now for new markets outside the EU?
What intellectual property does your business own or use? Do you need to take steps to ensure its ongoing protection going forward? For example, if you have registered EU Trademarks you should consider re-registering these as in the UK. It’s important to protect your patents.
Is this flexible enough to allow your business to flourish post Brexit? Do your contracts allow you to terminate or at least renegotiate if trading conditions become much tougher? Are you able to amend key contracts to include “Brexit clauses”? What about the regulatory environment – do you rely on an acceptance by EU countries into which you trade of common rules and standards? Will you need to apply for any new permits?
Finance and funding
How could your finances be affected by a split from the EU – consider the impact of staying in or leaving the common market. Does your business rely on any EU grants or funding? If yes, are there options to reduce the need for this or to source from elsewhere?
Look at all aspects of your internal systems and assess how they might be affected by a change in rules: for example on accounting for VAT, or processing personal data.
Trade associations and government support
Contact trade associations and government bodies to find out what support is available in your industry. Make sure you are getting up to date information to keep up with (or ahead of) your competitors.
Once you start planning for Brexit, it should become easier to see if there are areas where you can make your business model more resilient and prepare to take advantage of any opportunities that may arise. Appointing a single person within your organisation to look at the issue in the round may help and communicating with staff, suppliers and customers will be key, particularly if you are planning any major changes.
Paul Lester is a partner in corporate finance at law firm Cripps
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