Before the EU Referendum last year, the businesses community was divided on whether or not Brexit could be beneficial for British small and medium businesses.
A report from SME Insider found that there was a strong division among small businesses, with 46% favouring Brexit and 40% planning to vote remain. A range of factors influenced decisions, including the economic impact, the cost of EU membership, regulations imposed by the EU and, naturally, personal preference.
The next steps in the Brexit process now are of particular importance to the 4.9 million SMEs who are hoping they can expand their businesses through exporting, according to City A.M. Will a Brexit help or hinder these ambitions?
We’ve taken a look at the potential pros and cons of a Brexit for SMEs to help you consider the possibilities for you.
The pros of Brexit on SMEs
From a costs perspective, a Brexit could be positive for SMEs, as it is expected there might be a reduction of red tape, so businesses could benefit from a reduction in regulation. It has also been suggested that, freed of EU law, corporation tax could be lowered to enable British businesses to be more competitive; an approach recommended by William Hague when considering the best strategy for Britain if we do vote to leave.
Brexit could be positive for export businesses if it caused the Pound to weaken, making British services and goods more affordable to foreign markets and providing a much needed boost to the UK manufacturing sector.
Leaving the EU could also give the UK the freedom to agree better trade agreements with non EU countries, and it is hoped the UK government would be able to obtain fresh trade deals with more dynamic markets outside of Europe.
It has also been suggested that demand for British products and services is strong enough to overcome any trade issues leaving the EU could create. Small UK businesses exporting to Europe saw revenues from the Continent increase by 6% in 2015, according to Business Advice. Germany and France accounted for the biggest share of UK exports, while payments from Spain increased 27% compared to 2014. The European Union Referendum Bill was announced in May 2015, so a growth in exports in the same year could indicate that businesses do not expect a Brexit to have a significant impact on trade.
The cons of Brexit on SMEs
While trade was up in 2015, there have been some reports that Brexit uncertainty has been making it harder for SMEs to commit to long-term currency contracts. This has caused some small businesses who were hoping to expand outside of the UK to put their plans on hold until it is clearer if there will be any negative outcomes if Britain votes to leave.
Once the UK has left the EU, trade is likely to be affected at least in the short term, as current UK membership with the EU means that it is much easier for SMEs to export to Europe. Following Brexit, businesses who export to the countries under the European Union could be subject to new tariffs, depending on what kind of deal is negotiated. So this could be bad news for SMEs in particular who at the moment can export freely to European Union member countries. Whilst we remain in the EU and during the two year negotiation period once Article 50 is triggered, the lack of import taxes might mean businesses can continue to compete on a more level playing field with companies across the continent.
Global trade might also be affected, as the UK would likely need to renegotiate free trade agreements with non-EU countries, which are currently covered as part of EU membership.
There would also be a risk of a smaller talent pool as people would not be able to freely move over European borders, which in turn might cause issues for employers looking to recruit new staff. As outlined by Growth Business, people moving over to the UK from other EU countries since the year 2000 have contributed 34% more financially to the UK than they have cost us. British jobs could also potentially be put at risk, as the European Institute estimates that around 3.4 million UK jobs depend on exports EU countries.
Overall, what does this mean for SMEs?
There are plenty of ways SMEs can prepare in the meantime, until it becomes clearer what Brexit will mean for business. In general, planning ahead and effective management of finances is always key to the success of any business, whether that is cutting back on purchases which are not necessary or planning ahead with clients.
Exploring international trading options might be beneficial for SMEs who want to expand overseas. For example, if relations with Europe did become a little tense if a Brexit was to occur, some businesses may wish to look in to expanding their horizons further than the EU to help their continued growth.
A clear view of your expected costs and revenues, particularly if you are dealing with Euros or Dollars, will help you determine the best course of action for you. We discussed this in more detail in our Brexit video shortly before the Referendum, featuring our Economists Chris Towner and Andy Scott.
We’d love to hear your thoughts on Brexit – what considerations are most important for your business? Let us know in the comments section below. Or if you’d like to discuss your situation in more detail, please contact us on +44 (0) 1753 859 159.
You can view all our Brexit resources so far here.
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