Preparing for Brexit
October 2017 | TALKINGPOINT | BOARDROOM INTELLIGENCE
Financier Worldwide Magazine
October 2017 Issue
FW speaks with David Bryan at BM&T about how companies can prepare for Brexit.
FW: To what extent have businesses begun to experience the consequences of the Brexit vote? Generally speaking, how has the UK economy performed since the referendum result was announced in June 2016?
Bryan: Clearly there have been consequences stemming from Brexit, notably the effect on exchange rates. This has raised the cost of imports and this has fed through into inflation. However, the impact on the UK economy has not been anything like as bad as many experts predicted. Many economists think adverse effects have yet to work their way through and that falling real wages will eventually cause growth to falter. Conventional wisdom suggests they are right. One recent survey said confidence is falling but another survey of high growth businesses suggested business confidence was at a high. Figures show manufacturing growth has accelerated and a Monetary Policy Committee (MPC) member has suggested that recent GDP data will likely be revised upwards. It is hard to understand exactly what is happening but we are still experiencing growth and high levels of employment. The economy does seem more resilient and flexible than most experts thought it would be.
FW: What strategic plans should businesses put in place to help them ‘weather the storm’ ahead of the March 2019 deadline for exiting the EU? What are your early predictions on the nature of the relationship between the UK and the EU during and following exit negotiations?
Bryan: If there is one thing the last 15 months have shown it is that predictions are almost always wrong. I suspect we will go through a number of ups and downs in the Brexit negotiations and that will cause sentiment to fluctuate. The negotiations are bound to be difficult and we should remember that nobody has ever attempted anything like this before. Planning is therefore all about dealing with uncertainty. Scenario planning is a helpful process whereby you look at what the various outcomes could be and what impact that would have on the business but it does need to be done carefully. I am loath to make a prediction of the nature of the eventual relationship but do feel that common sense will eventually prevail. We are already hearing rumblings from the business community that they want some certainty and I cannot see business leaders being satisfied with anything that is massively detrimental to trade.
FW: As market conditions fluctuate, what steps can businesses take to ensure they are well-positioned to react positively and flexibly to disruption? How might the adoption of a principles-based approach afford them greater scope to respond to variable market conditions?
Bryan: Given the uncertainty over the outcome of Brexit negotiations, I think the key thing for businesses is to be flexible and agile. At some point, we will get a better idea of how things might turn out, but with substantive negotiations on a trade deal not even started, businesses need to be ready to react to however things pan out. Scenario planning is a useful technique and the aim should be to have multiple broad strategies to cope with eventual outcomes. In the meantime, it may also mean staying as flexible as possible, for example taking on temporary staff rather than permanent, or dual sourcing products and services. Right now you cannot know what Brexit will actually mean for your business, so focus instead on how you will react when you do know what it means.
“I believe business can adapt and survive. The shock of the referendum result is wearing off and business leaders recognise they must get on and make things work.”
FW: With David Davis stating that transposing EU legislation into UK law will require technical rather than substantive changes, how do you foresee the impact this will have on businesses as they adapt to a changing legal and regulatory environment?
Bryan: At first sight it does seem to be a simple process that transitions all EU law into UK law so that everything carries on without any change, but it does seem there are a raft of issues that will complicate matters. These range from matters currently dealt with directly by Brussels – for example, farms and fisheries – which will require additional legislation, to how the whole issue will be handled for the devolved parliaments within the UK. It will be well worth keeping abreast of this through trade associations, professional bodies and so on, in case legalities arise which could impact your business. Businesses may also want to consider a high-level review of their important contractual relationships with their lawyers to identify whether they could be impacted. If so, then again it will be important to map out the options depending on the eventual outcome of the legislative changes.
FW: How do you see businesses reacting to the disruption that Brexit could cause with regard to supplier relationships, such as restrictions on the movement of goods and the provision of services?
Bryan: I think businesses will generally cope with this. We already do a lot of business with countries outside the EU, each with their own regulations, and whatever Brexit throws up I think we will adapt. In many ways, the current period of uncertainty is the worst situation. Once we get past that and know what we have to deal with, it will be easier. Tariffs would be inconvenient but manageable. We already have them for non-EU trade and most of this is handled electronically. I think the bigger risk is non-tariff barriers, for example onerous proof of origin requirements. Hopefully the eventual Brexit deal will minimise these but businesses need to be on alert for potential barriers and plan for how to deal with them. It is also essential to understand how you fit into supply chains. It may be that the impact of Brexit is on your customer or your customer’s customer, so what might that mean for you?
FW: What general advice would you give to businesses in terms of positioning themselves to take advantage of the opportunities that may arise as the Brexit process unfolds, while preparing to face new risks that could impact their business?
Bryan: This is new ground for both the UK and the EU, so you should expect plenty of volatility. But I do think it is important to think positively about it, whichever way you voted in the referendum. We are not going to stop trading with the EU, although the way we do will likely change to some extent. Other countries trade perfectly well with the EU, so it is possible. Brexit could bring opportunities as well presenting difficulties. Smart businesses will be looking at both. Even before the referendum, our trade with the EU was falling as a percentage of GDP as trade with non-EU countries grew. That trend will likely continue and you do not have to wait for new trade agreements to pursue such opportunities. If ever there was a time for the entrepreneurial spirit to come to the fore, it is now.
FW: As the full implications of Brexit become clearer, do you believe business leaders can adapt operationally and survive the changes that leaving the EU will bring?
Bryan: I believe business can adapt and survive. The shock of the referendum result is wearing off and business leaders recognise they must get on and make things work. The EU has its own problems, particularly the euro and the bank issues in southern European states. Ultimately the EU needs a workable deal. I think British businesses will rise to the challenge. As somebody that deals with many businesses in difficulty, I would make one last point: always watch for the cash impact of whatever happens. It is easy to get lost in the profitability calculations of changes in sales and costs, but what will the Brexit-related changes mean for cash? I never cease to be amazed by businesses that think only in terms of profit and ignore cash. No business ever went bust through lack of profit, only lack of cash. At a time of volatility, never lose sight of cashflow.
David Bryan is a founding principal of Bryan, Mansell & Tilley LLP and a hands-on senior financial manager with extensive experience working with international and UK companies in restructuring and improvement. He has operated at CFO level in large and SME companies in the UK, US and Europe and has many years experience with public and private equity owned businesses. His industry experience includes automotive supply and commercial vehicle manufacture, industrial systems and services. He can be contacted on +44 (0)20 3858 0289 or by email: dbryan@bmandt.eu.
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