Brexit, SME confidence and contingency planning

The Brexit car crash is having a negative impact on SME confidenceConsidering that SME confidence has been plummeting for some months now, last week’s crescendo of Brexit mayhem following the announcement of a mutually acceptable EU-UK draft agreement could hardly have been less helpful.

The 500-plus page document was only released to Cabinet members on Thursday, yet the Brexiteer objections and calls for resignations began well before any of them could have read or digested the details and it is questionable whether there was any comprehension of the implications of the contents or their consequences for businesses.

The suspense will doubtless continue this week, as we wait to see whether enough MPs submit letters to trigger a vote of no confidence in the Prime Minister and whether the document will even be approved in the House of Commons.

If it is not, what then – leaving the EU with no deal at all?

How can SME confidence be maintained and what price contingency planning?

Back in October the FSB (Federation of Small Businesses) had already warned that a no-deal Brexit would be “catastrophic” for SMEs and result in them postponing investments and cutting their workforces and Bibby Financial Services’ SME confidence tracker had revealed that 61% of importing firms expected a decline in profits if they could no longer access the EU single market.

Nevertheless, the Prime Minister yesterday continued with her positive messages about the agreement with a speech at the CBI annual conference. The CBI, while conceding that the draft agreement is not perfect, has urged parliament to endorse the deal, to protect business from the “wrecking ball” of leaving the EU without an agreement.

Mrs May’s focus in her speech was on immigration and the opening up of opportunities for skilled migrants earning £30,000-plus p.a. from all over the world, not just from the EU.

For months SMEs have been warning of shortages of workers, both low-skilled, seasonal and higher skilled, and of recruitment difficulties pushing up wages in an economy that is as near full employment as it has ever been. It has been one of the main concerns particularly in the hospitality, construction and farming sectors since the decision to Brexit was made.

The CBI chief, Carolyn Fairbairn said yesterday that the shortages of workers were “a really serious issue and we do have a huge difference with government on [it].” She questioned the idea that if you shut off the low-skilled route jobs are going to be filled: “Pulling up the drawbridge would be a very damaging thing to do.”

Increased costs, of course, apply not only to wages, but also to the many business that are locked into an EU-wide supply chain, whether it is for raw ingredients for food manufacture, materials for manufacturing, components needed for repairs or new equipment and machinery.

What can SMEs do to prepare for the post-EU world?

The FSB has advised its members to “step up their no-deal planning” as the prospect of the UK leaving the EU without a deal in March increases.

Clearly contingency planning has to move to the top of the SME agenda.  It will likely mean stockpiling supplies of the necessities to enable production to continue, and that will mean sourcing additional storage space, which is reportedly rapidly running out. It will mean spending any reserves to acquire these essential items rather than investing in growth for the future. It may mean setting up small satellite offices within the EU and making arrangements with EU suppliers in advance of the March deadline.

This applies to most SMEs including those who don’t trade with the EU since most firms use equipment that relies on imported consumables and spare parts.

All of this will have a significant impact on many SME businesses who will need to stockpile essential items to continue trading in the short term at the expense of longer term plans.

It could mean postponing investment in AI, robotics or new plant that would enable businesses to grow and be ready for the competitive challenges of IR 0.4 (the Fourth Industrial Revolution).

This was reinforced at yesterday’s CBI conference by Carolyn Fairbairn, who said: “Our firms are spending hundreds of millions of pounds preparing for the worst case – and not one penny of it will create new jobs or new products.

“While other countries are forging a competitive future, Westminster seems to be living in its own narrow world, in which extreme positions are being allowed to dominate.”

Contingency planning will also mean, as I often advise, maintaining an intense focus on cash flow, collecting in overdue payments and reducing debts.

Essentially, it means SMEs will have adopt the World War II advice to “keep calm and carry on” in the face of all this uncertainty.

Is it any wonder that SME confidence is at a low ebb?

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