A view from the border

While many entrepreneurs are apprehensive about the future, it is now time to act in the best interest of their business.

As the Brexit process trundles along following the historic vote on 23 June 2016, it is becoming apparent that its impact on EU businesses will be most acutely felt in Ireland and, in turn, nowhere more so than in the border region.

As they look to the future, some seasoned business owners will refer back to currency changes of the past and previous border arrangements, while others will not have even experienced the last recessionary period.

What we are seeing in common across these groups of business owners, both in the Republic of Ireland and Northern Ireland, is a growing resolve to actively plan for and manage the challenges of Brexit, to exploit its opportunities and, above all else, to ensure the survival of their business.

The story so far

Looking beyond the political negotiations and the background noise they provide, the effects on business to date have largely been twofold: Brexit has created an atmosphere of uncertainty around future trading arrangements and has severely devalued sterling over the intervening period while delivering large fluctuations around this trend along the way.

Clients have had to engage regularly and communicate strongly with financial stakeholders, suppliers, employees and customers alike in terms of their business plans and strategy to alleviate uncertainties. Both they and their advisors have had to embrace financial forecasting and the basic principles of currency hedging to deal with the vagaries of the euro/sterling exchange rate.

The certainties and uncertainties of the future

The only certainty which Brexit would seem to offer business is a short- to medium-term period of speculation and uncertainty around the fundamentals of their business.
Goods and services: perhaps the greatest unknown for goods post-Brexit will be the tariff regime. Failure to reach a trade agreement by April 2019 could see a default to the World Trade Organisation (WTO) tariffs involving classifications for over 5,200 different product lines with tariff rates ranging from 0% to 50% based on the EU external tariff schedule. Customs procedures will bring delay and costs to cross-border trade and the logistics of the supply chain will need to be re-examined at each border crossing. Access to markets will present a similar challenge to both the providers and users of cross-border services. A new VAT treatment for these newly created cross-border supplies will also add administrative time and cost and increase the burden on working capital.

People: analysing your workforce in a post-Brexit landscape will raise questions around the ability of your business to recruit, the time and travel arrangements for cross-border commuters, and possibly their right to permanent or seasonal work in their employer’s jurisdiction.

Money: while free movement of capital appears to be a common goal of negotiators at present, it is not guaranteed and as the finer detail of a Brexit proposal emerges, what will the implications be for Northern Irish businesses that have already availed of EU-supported funding? At a more fundamental level, businesses will experience an increase in their working capital requirement should they have to accommodate tariffs, VAT and increased logistics costs into their business model. This will undoubtedly be compounded by ongoing currency fluctuations.

Brexit as a source of opportunity

As with all change, some people have embraced Brexit with a will to adapt and improve their business wherever and whenever possible. Amidst all the well-publicised cases of eroded margins, cancelled contracts and stalled investments, I commend our clients who have seized this opportunity to overhaul their supply chains, their operations, their target markets and their financial models.

Clients whose products run the risk of the most punitive tariff rates have begun to explore the reengineering of those products with a view to their reclassification to a lower tariff rate. We have also seen clients who source products from the UK hedge their 2018 sterling requirement in the low 90s, thereby guaranteeing a competitively priced supply of material for their 2018 contracts.

On the other side of this coin, clients who find themselves inextricably linked to sterling-based customers have renegotiated their pricing to allow for future fluctuations, be they upwards or downwards, further strengthening their ties and loyalty with these key customers. Others have engaged with their UK suppliers around future trading arrangements to the point where the latter see them as strategic partners through whom they can supply other Irish and EU customers and markets. Ireland is uniquely placed in this regard with a common language and legal similarities to accommodate EU-facing partnerships or trading subsidiaries from the UK in a post-Brexit landscape.

Smaller clients who may not have the scale or scope to enter into such arrangements have sought to position themselves as the ready alternative to sterling-based suppliers to Ireland who are unprepared or encounter difficulties post-Brexit. In general, we see clients who seek to address the challenges of Brexit and look to exploit its opportunities emerging with businesses that are re-focused, more efficient and leaner than before.

The client’s perspective

Recent InterTradeIreland surveys have found that 77% of cross-border traders say the level of uncertainty makes it difficult to plan while 38% want more information to formulate their plan.

Many business owners are over-reliant on daily news programmes for their information on Brexit and this can at times come from a more political or geographical viewpoint as opposed to the commercial, economic and financial perspective needed to make informed business decisions.

As we continue to emerge from the last recession through this period of growth, many business owners feel that they do not have the necessary resources – and time, in particular – to properly analyse the impacts of Brexit, let alone formulate their business response.

Analysing Brexit can throw up myriad issues across a wide range of disciplines (financial, logistical, marketing and legal, for example) for even the smallest and overtly simplest of business operations. Forward-facing, progressive business owners cannot afford to shy away from this challenge or procrastinate until the eleventh hour.

Asking for help

Fortunately, there is a broad range of supports available to business owners and their advisors to enable them to correctly plan and execute their Brexit response. Financial institutions are training and allocating special advisers; professional bodies are educating and updating their members; and government agencies such as Enterprise Ireland and InterTradeIreland are offering a range of training courses, mentoring, and professional and financial supports. These organisations and others, such as the British-Irish Chamber of Commerce, have published a wealth of reference material on Brexit which is freely available online.

Conclusion

For business owners, the time for speculating about Brexit has passed and the time for planning and action is now. Irrespective of the ongoing political negotiations, the eventual terms reached, or even if they hold out hope for a reversal of the Brexit decision, business owners have a duty of care to themselves, their businesses, their employees and their dependants to take the lead and guide their business through this period of change. As their advisors, we must lead this process.

Barry Kieran FCA is Managing Partner at Amatino Partners.