According to the head of Europe and trade policy at Institute of Directors, Allie Renison, in an interview with Bloomberg, UK small businesses are “not prepared” for Brexit. Reflecting this, CBI (Confederation of British Industry) estimates also show that only approximately one in five UK businesses have taken steps to prepare for Brexit, whether that meant relocating onto the continent, adjusting supply chains, stockpiling goods, or laying off workers. For businesses, this signals potentially serious difficulties ahead, as Parliament has overwhelmingly rejected Theresa May’s Brexit Deal, and making a no-deal scenario increasingly probable.
Business owners, of course, have been aware of the situation for years. However, in absence of any real information on what will actually happen on March 29, SMEs have had practically no guidance on how to prepare, or what to explicitly prepare for. As Renison points out, it’s currently unclear whether, or to what extent, tariffs or customs processes will be affected. While some sectors, such as financial services, have taken steps to prepare, most businesses feel they need more information before they can act. Given that time is running out, though, what businesses need most of all in order to be prepared is cash.
Uncertainty is the only certainty
A best-case scenario, in which the UK achieves some type of trade agreement with the EU, doesn’t guarantee a positive outcome for small businesses. Any new trade relationship would still involve significant changes to how businesses interact both with the EU, and their non-EU foreign partners. After all, it’s still entirely unclear how Britain will economically interact with non-EU countries after Brexit, since those relationships are currently governed by EU agreements.
Considering the conflicting messages that business owners have been offered by the government regarding how seriously to take the coming exit from the EU, the complete lack of precedent for such an event, and the dearth of information about what the exact effects of Brexit will be, business owners are largely left guessing when it comes to something as basic as what sufficient preparation even looks like.
Making the best of a bad situation
A casual observer might be confused why businesses haven’t simply made preparations for a worst case scenario, thinking that this will protect them in any eventuality. Unfortunately, this is because that isn’t the case. Businesses who have already spent their resources preparing to operate under WTO rules may find themselves at a competitive disadvantage if the government does come through with a last-minute solution. By waiting, businesses can attempt to keep their options open, allowing them to adapt to the new reality as it emerges.
With only a little over two months remaining before Britain does leave the EU, businesses need to ensure that they have the flexibility to manage a no-deal situation, as well as one involving an eleventh-hour deal. The largest hurdle that business owners will need to jump in order to act quickly and decisively in any scenario is, of course, financial. Traditional loan applications can take weeks or months to process, and investors are likely to act conservatively in such an uncertain time when it comes to seeking equity investment. Instead, businesses need ways to get funds and make adjustments to their businesses immediately.
Businesses need financing solutions now
When businesses find out what the post-Brexit reality will actually be, whether that is when a deal is made, or when Brexit actually happens without one, they will be racing against time and one another in order find ways to continue operating profitably before funds run out. Both to make any necessary changes, and to buy themselves time, businesses will need fast access to financing resources.
Supply chain finance and trade finance
A great way to come up with additional funds quickly is to use supply chain finance or trade finance. These allow businesses to pay suppliers out of a credit fund, rather than directly out of their own pocket, guaranteeing steady payment for those suppliers in otherwise uncertain times. Moreover, payments on the balance of that credit fund can be deferred for up to 90 days, giving businesses the opportunity to put their existing working capital to other uses for the duration. That gives businesses the means to provide themselves with an instant financial boost right when they need it most.
Of course, businesses don’t always have enough working capital on hand to do what is needed. To manage this, they can use invoice financing to bring in additional cash. After Brexit, businesses will need to act quickly, and won’t want to wait for future revenues to come in before they can start making changes. To bring those funds in more quickly, they can trade outstanding invoices in to their financial institution in exchange for immediate payment. Financial institutions like Fifo Capital will issue the majority of the outstanding payment up front, and then pay out the remaining balance when the payment is collected from the client, minus a predetermined fee.
Today, business owners still largely don’t know what to specifically do with their businesses in order to protect them at the end of March. The nearer March 29th comes without a clear decision by the UK government, the more imperative it is for business owners to secure the funds they need to act quickly and decisively when the time comes. By using these tools, as well as others, such as unsecured business loans, businesses will be able to get the cash they need within just a few hours, giving them a leg up on the traditionally financed competition.