Brexit continues to dominate our headlines as March 2019 approaches ever faster.
A final deal will be reached by 21stNovember. At least, this was the assurance Dominic Raab gave to MPs in a letter last week.
At the time of writing, we also eagerly await strongly implied positive news from the British and Irish governments about the Irish border issues that have been a stumbling block for Theresa May in avoiding the dreaded No Deal Brexit.
Dare we begin to hope that this is the long-awaited progress we have failed to see come to fruition since negotiations began last summer?
Impending economic disaster dominates the headlines, but we look at what could really be in store post-Brexit for SMEs
Well, what will Brexit mean for your business?
There are many theories, and economists are relatively united that the economic outlook is a pessimistic one.
You would be forgiven if so much as reading the B word sends you into a cold sweat by now, given the Brexit Armageddon scenarios the British press find so effective. When forming rounded opinion, it is important to explore corporate perspective as well as those of economic forecasters and to understand the resilience of the businesses we are proud to support. Thankfully, it is unlikely the Brexit implications for SMEs will be as disastrous as some models like to indicate.
Optimism for the post-Brexit Business Landscape
OCO Global, a specialist trade and investment advisory firm, carried out a survey of more than 1,000 UK SMEs. The results of their SME Brexit Survey 2018 were launched in August 2018, and were a mixed bag.
Perhaps most surprisingly, of those surveyed more have already felt a positive impact on their business since the EU referendum than negative: 32% of SMEs reported improvements since 2016, with only 24% reporting a negative impact.
More than a third of surveyed business owners said they have attracted new business since the vote, with a similar number reporting increased sales with existing clients. These sentiments were especially true for businesses that currently export, with 43% of such respondents reporting a positive impact since the referendum.
SMEs report feeling more optimistic than larger companies. 46% of smaller organisations versus 30% of larger organisations felt positive about leaving the EU, largely down to the fact that Brexit will be disruptive to the existing trade of larger organisations. This disruption should provide opportunities for smaller businesses to increase their marketshare, providing they have the financial wherewithal to respond to the changing tides.
There is also hope that a reduction in red tape will provide opportunities for smaller businesses to seize export opportunities that have previously been unavailable and expand into new markets.
All in all, the results provide some refreshing positivity and a hopeful outlook that makes for comforting reading as anxieties build ahead of the March 2019 exit date.
Will there be negative Brexit implications for SMEs?
Realistically, a negative impact is somewhat unavoidable. All political instability leads to economic uncertainly, which in turn leads to reduced investor and lender confidence. There will undoubtedly be negative economic consequences, at least in the short term.
A study conducted by the University of St Andrews School of Management found that, “Brexit could potentially result in weaker growth, lower levels of innovation, reduced capital investment and lower access to external finance, especially for innovative and export-oriented SMEs.”
So, while trade opportunities may increase, a company’s ability to act strategically and their access to the working capital required to take advantage of growth opportunities may be stifled.
Most economists are convinced that one of the major impacts on UK plc will be reduced access to borrowing, and higher interest rates. The UK’s current account deficit stands at around 5% of GDP, and continues to widen. It remains unseen what effect the UK’s departure from the EU will truly have on trade, but it is expected that initially this deficit will increase. Investment activity is therefore expected to fall.
In a lending confidence double-whammy, the UK’s creditworthiness is expected to reduce once our protective boost of EU membership is removed. Therefore, the availability of external financing may be reduced for the entire economy, translating to limited access to finance for SMEs, particularly start-ups.
In addition, the European Investment Bank Group invested EUR659million in UK SMEs in 2017, and this loss of access to funding will be felt heavily, especially since the cost of domestic borrowing is set to rise.
One way your business can get around the issue of reduced borrowing opportunities in the face of Brexit-related uncertainly is to consider alternative finance arrangements. Services such as invoice finance for SMEs are expected to continue to increase in popularity. Invoice finance could bridge the funding gap, providing access to working capital by turning your outstanding invoices into readily available cash, enabling you to withstand any delayed debtor payments or the growth pains of increased trade as you weather the potential storms of the UK’s departure from the EU.
The overall picture
The overall message regarding how UK SMEs will fair after March 2019 is one of caution, with an air of hope. There are risks, and there will undoubtedly be casualties, but with change comes opportunity.
It remains to be seen whether the risks of the UK leaving the European Union can be mitigated by better access to free trade, or a market shake up that provides an opening for smaller businesses who are savvy enough to seize opportunities arising from the transition.
It is crucial that smaller businesses have the agility to act quickly on growth opportunities. Those with fast access to working capital are best placed to do just that. The challenge for UK business lies with securing access to funds to enable flexibility and strategic growth in the face of reduced borrowing power.
If securing flexible finance is an obstacle standing between you and business growth, we want to help. If you would like to find out more about how Partnership Invoice Finance can offer alternative finance for SMEs, including invoice financing for start-ups, please contact us to see how we could work together.