Just over a year after Britain voted to leave the European Union (EU) in the referendum held on June 23, 2016, the Brexit negotiations are now in their second phase which will be focused on transition and trade negotiations. These negotiations which kicked off what promised to be a long and difficult process for both parties have lived up to that expectation. The talks which began on June 19, 2017 led by David Davis Secretary of State for Exiting the European Union, now enter the phase of the process which will influence Britain’s economy for many years to come, especially for small businesses.
In order to understand the impact Brexit will have on SMEs (small and medium-sized enterprises) and the steps which can be taken to reduce losses, we first need to understand the single market. The single market is the core of the EU as it enables all EU member countries to enjoy what has been called the ‘four freedoms’. These four freedoms seek to guarantee free movement of goods, services, capital, and people. This means that countries can trade with each other without paying tariffs whilst people can work and live in EU countries without needing a visa or work permit.
For SMEs, the vote on June 23, 2016 left many of these businesses with no idea what the future would look like in terms of the costs to do business. As the UK was a member of the single market, SMEs enjoyed free trade of goods among the single market member nations. However, as the Brexit negotiations enter the trade phase, SMEs invariably will acknowledge that whatever deal comes at the end of these negotiations will most likely not be that good compared to being in the single market. For example, increasing costs due to trading restrictions could lead to some SMEs downsizing considerably and cutting jobs. After all, it has been predicted that at least 4,000 jobs will still be lost, and it could cost UK industry around £2 billion a year too. As many businesses have now already formed strong relationships across the single market where they can rely on access to customers, suppliers and labour, it is very important that this stage of the talks should be conducted with great care to make sure the best trade deal can be achieved.
However, there are pro-Leave supporters who believe that most SMEs will just have to adapt their business models to deal with the new realities. For example, if SMEs are to struggle with doing business when outside of the single market, they could instead target the domestic and international markets. As one fifth (21%) of small business employers in the UK currently employ EU staff, if SMEs struggle to hire employees due to immigration restrictions into the UK, they could hire and train the domestic workforce. The message here for SMEs being that Brexit could open up more opportunities and SMEs should be prepared to make the most of the opportunities that can be found.
One school of thought would be to look at Brexit as a chance to grow and expand British businesses. Given proper investment, there is potential for a variety of SME growth after the Brexit process is complete. Research commissioned by the CBI, UK’s main employers’ group, suggests that strengthening supply chains could add £30 billion to the UK economy and create more than 500,000 jobs by 2025.In order to achieve this, many businesses would need to start reviewing their current business structures to see if they would be able to survive or adapt to the post-Brexit economy. Market research, considering your customer base and evaluating the potential impact of Brexit on your relationship with your customers must now be areas of focus for SMEs.
According to the Automotive Council, in the car industry alone UK suppliers could take a much bigger share of the market and reduce the UK trade deficit by £4 billion .Nearly one-third of UK businesses that use EU suppliers are now looking for British replacements. But UK domestic supply chains are relatively weak and it is not clear whether they will be able to take advantage of emerging opportunities. For instance, only around 44% of the parts used in vehicles assembled in the UK are sourced domestically. This compares to an estimated 60% in Germany and France. (http://www.smeweb.com/2017/07/18/uks-post-brexit-economy-hinges-small-businesses-innovation/)
According to the UK small business statistics, small businesses accounted for 99.3% of all private sector businesses at the start of 2017 and 99.9% were small or medium-sized (SMEs). Because of the huge impact of SMEs on the economy, the government needs to make more effort to secure their interests. Many business owners have said that the government should provide more assistance and figures on the true picture of what a post-Brexit economy will look like. And a long-term approach is required to build strategies which maintain the growth of SMEs to reduce the risk of damaging the health of the UK economy.
It is time for businesses to take control of their own destiny, ensuring that they have strong business structures in place. With the GDPR coming into force on the 25th May 2018, there are several challenges which will test the resilience of UK businesses in the next coming year.
Until a clearer picture is provided, SMEs must remain flexible and innovative and make sure that they take full advantage of opportunities which may be created in the post-Brexit markets.
Solinda Nyamutumbu is a legal intern at Pure Business Law. She is an LLB Graduate from The University of West England as of July 2017 and began her LPC/MSc course at The University of Law (Bloomsbury) in September 2017 as a part-time student. She has greatly enjoyed the varied and in-depth commercial experience which she is gaining during her internship at Pure Business Law.