How Brexit is affecting SMEs (and 5 ways to ease the pain)

27 July 2016 -


With the political and economic impact of the UK public’s decision to leave the European Union last month still unfolding. Here, Insights assesses the key challenges bosses of small and medium-sized businesses believe they may face following the vote for Brexit

Jermaine Haughton

Five potential challenges emanating from the Brexit scenario standout to the attention of SME bosses, according to a new survey of over 800 London small businesses by professional services firm Robinsons Chartered Accountants.

Here, we take a look at what they mean for SMEs, and what you can do to cope amidst the everchanging political and business landscape.

Political leadership

Firstly, the issue of political leadership post-Brexit was found by the research to already be affecting business decisions, following the resignation of Prime Minister David Cameron, and the Shakespearian soap opera between leading Conservative Party MPs to become his successor.

And with new Prime Minister Theresa May, who backed the Remain vote during the Referendum vote, agreeing with German Chancellor Angela Merkel that Brexit talks will not begin in 2016, further delaying the triggering of the so-called "Article 50" in the European Union treaties, which will formally begin the Brexit negotiation process, bosses will be keeping a close eye on how the former Home Secretary handles the pressure of leading Britain’s exit from the bloc.

Already, President François Hollande has sought to hasten the UK’s departure from the EU, saying: “But let me repeat, the sooner the better in the common interests of Europe … because uncertainty is the greatest danger.”

Lending Rates

SME chiefs are worried by the potential difficulties in accessing capital and the increased cost of borrowing due to loss of the UK’s AAA rating and government inability to reduce the deficit.

Shortly after the referendum result, Standard & Poor stripped Britain of its last remaining top-notch credit rating, dropping it by two grades from "AAA" to "AA" and Fitch Ratings also downgraded its ranking for Britain's creditworthiness by one notch, and similarly said more cuts could follow.

Alongside volatile markets, some experts expect many businesses, with fresh memories of the global crash in 2008, to be conservative and watch their expenditure even more closely till the dust settles.

If the Brexit negotiations are dragged on for a number of years, however, such an approach could lead to business paralysis.

Stephen Hodges, chief executive of Close Brothers Banking Division, has said: “SMEs now need to consider how to diversify their access to advice and finance away from traditional high street banks and towards specialists who better understand their needs and the specific problems and opportunities of a post-Brexit landscape.

”They also need help to plan and invest as well as access to funding that best suits their needs.”

Cross-border Trade

The uncertainty about cross border trading due to uncertainty on the trading relationship with the EU provides a further conundrum for British firms.

On one hand, the Financial Times reports that only an estimated 6% of the UK’s 5.4 million small and medium-sized enterprises export to the single market, while other sources such as the Confederation of British Industry (CBI) state that EU membership was important in supply chains and recruitment for SMEs, as well as having preferential market access to over 50 countries outside of the EU.

Optimistic business leaders point to the opportunity Brexit provides to get greater trade deals with countries such as China, Canada, India and Australia.

Concerned executives are worried European businesses will be forced to cut back on trade with the UK, with new duties, border delays and transport costs likely to push more EU-based SMEs into trading with fellow member countries.

Italian carmakers such as Fiat, for example, could be boosted by the potential increased difficulty for UK-based Japanese firm Nissan to sell cars into the European market at prices that are competitive.

Potential Brain Drain?

With a large percentage of young voters choosing to stay in the EU, according to polls, and German, Canadian and French politicians already making pleas for Britain’s top talents to make the switch to Frankfurt, Toronto or Paris, Brexit has triggered warnings of recruitment problems for SMEs.

In the education, technology and science sectors, experts have predicted a brain drain as researchers move to the continent.

From 2007-2013, the UK received €8.8bn (£7.4bn) in funding for research from the EU, €3.4bn (£2.8bn) more than we contributed. That funding deficit would have to be made up by the UK government.

Jonathan Adams, chief scientist at the consultancy Digital Science, said that the Leave vote was a “real concern” and would strengthen the appeal of universities in places such as Singapore and South Korea. It will put off “people here who feel alienated by the attitude to internationalism in their own country”, he said.

In addition, scientists from abroad would be deterred from coming to the UK by “anti-foreigner” sentiment.

More box-ticking

Finally, there is the possibility that businesses may be faced with an increase in red tape, at least in the short term, as the Government looks to cut civil service responsibilities and pass the ever-increasing burden of compliance administration to SME owners.

Delamere Dairy’s Mr Salt says he does not believe the UK government will make up the full value of subsidies paid by Brussels to farmers, for example, which might push up costs.

Already Sage, the software company that provides about half of UK employers with management systems, has provided customers with a checklist of areas that could affect them. These include VAT reporting on EU sales, recruitment and product packaging and labelling.

Joseph Robinson, managing partner of Robinsons, said: “London SMEs are understandably worried about a possible slowing of economic growth but they cannot stand still. A potential lack of political decision could create a sterile business environment.

“In contrast, small and medium sized businesses need to proactively plan for the future. Research and development and new capital investment are likely to be the first areas to suffer but scenario planning will enable businesses to trade through any resulting economic slowdown with added assurance.”

Robinson added: “It is crucial to approach this period with an objective, proactive and diligent mind-set. The uncertainties brought about by Brexit are undoubtedly forcing businesses to re-assess their position but providing they look for both risks and opportunities there is no reason they won’t be able to mitigate any long-term negative effects. Seeking expert advice from their accountant or business advisor has never been so important.”

Given the challenges identified in the study, Robinson has recommended the following actions for small and medium-sized businesses:

1. Ask for advice – Assessing your company’s financial health is the best place to start. Uncover any potential risks that you might have previously been unaware of;

2. Evaluate your next steps – Had you planned on investment? If so, is it still a viable option? If not, was it an essential strategy and what alternatives are there? Know your options, however quickly they seem to change;

3. Plan, plan and plan again – Contingency planning will be key to limit your exposure to fast-changing market conditions. Establish your critical levels of support within the business, i.e. at which point does action need to be taken and how should that take place?

4. Revisit your recruitment strategy – Is the level of expertise you were looking for still a viable investment? Do you have the foundations to expand your workforce or is there a more suitable option?

5. Review your internal procedures – Is your finance team up to date with the latest requirements from HMRC? Are you in a position to manage these in-house or would outsourcing provide more flexibility? Ensure you can react quickly and efficiently to new legislation and compliance.


One month on from the referendum, our latest quick survey looks at the impact of the Brexit vote on managers and their organisations.

The survey will only take around 5 minutes to complete and rest assured the survey is completely anonymous.

Whatever your views, positive or negative, please share them with us here

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