SMEs moving ahead with preparations despite Brexit constraints
Despite resource and other constraints, the sector is moving ahead with preparations
“When the owners or managers of SMEs have got into detailed planning, they have found that they have been able to mitigate some of their risks very cost effectively,” says KPMG partner Ryan McCarthy
While much has been said about small firms being ill-prepared for Brexit, Small Firms Association director Sven Spollen-Behrens says this is not actually the case.
“We have not heard from one of our member companies that this is the case,” he says. “Since 2016, the SFA and Government have been working towards getting small firms Brexit-ready and from speaking to members over the last few days and weeks this is very much the case. Small firms have focused on the main issues and continue to today. These are currency, supply chain, the UK land bridge, finance and funding, labelling and regulation, investment, and currency. Where small firms may be struggling and may not be able to afford to continue to sell to the UK could be because of fast changes in regulation in areas like food labelling or cosmetic labelling.”
The picture is not quite so uniform, according to KPMG partner Ryan McCarthy. “SMEs are unquestionably in an unenviable position when it comes to Brexit,” he says. “The vast majority of all Irish SMEs are either exposed by virtue of being importers or exporters to/from the UK – or in many cases both. From our interactions, many SMEs have avoided Brexit planning. However, when the owners or managers of SMEs have got into detailed planning, they have found that they have been able to mitigate some of their risks very cost effectively through clever contingency planning and making sensible alterations to supply chains.”
Many companies will undoubtedly still need to take measures, he continues, particularly in the area of Customs. “However, given the volume of information available publicly on this issue – a lot of work can be done by businesses to identify where their material issues might be. Medium-term business planning, using Brexit as a central scenario, should be the first step for any contingency plan – we certainly would advise all clients to do their own diligence before they start to incur significant costs. Some of the most thorough Brexit planning we have seen has been achieved very cost effectively.”
Mazars managing partner Mark Kennedy also has more than a little sympathy for the sector. “They do face issues. SMEs don’t have a huge amount of capital to invest in these things and there is not a huge amount of management capacity either, so it is very understandable that they would find it difficult to prepare. The industry associations have done a ton of work on this, however. They have produced checklists and a lot of other resources to help companies. The companies themselves can also reach solutions by working with suppliers and customers and so on.”
Change will come whether it’s a hard or soft Brexit
PwC director Owen McFelly advises SMEs to focus on things they do know. “There is much talk of uncertainty but there is actually lots of certainty out there,” he says. “Take tariffs, for example. Lots of people are saying they don’t know what tariffs will apply. But you can use the Customs classification code to identify the tariff. It’s quite easy to find. You can engage with a Customs specialist if necessary. You can use that to get a feel for the potential cost increases involved and you don’t have to do this for every product. You can use the 80:20 rule to work it out.”
He notes that the ESRI has produced a report that gives an indication of many of the tariff rates.
“Another certainty is that you need an economic operators registration and identification [EORI] number from Revenue,” he adds. “That is straightforward and something you can do now. If you don’t have it, you won’t be able to import from or export to the UK. Change will come whether it’s a hard or soft Brexit. If it’s hard, you’ll have Customs and tariffs to deal with. If it’s soft and we’re moving into some kind of trade deal there will still potentially be some tariffs and the UK won’t be any different to a country like South Africa when it comes to trade. The world is going to be very different and we are going to have to deal with that sooner or later. The cost of not doing anything is higher than the cost of doing something now.”
In a slowing economy, the financial institutions will be less likely to provide credit to small firms
Money is still a worry for SMEs, according to Spollen-Behrens. “The big worry for small firms is access to finance,” he says. “Many small firms remain reluctant to borrow, trying to avoid the potential hardship familiar from the recession. This means that they are using savings to facilitate cash flow and working capital. We are worried about delays with payments from customers and are advising members to think about how different scenarios could affect them.”
He points out that small firms need to think what impact on their business would there be if their payment terms doubled. “If your customers typically pay you within 45 days what would happen to your business if they paid within 90 days?” he asks. “They should consult their accountant who can very easily run the numbers on this for them and it will highlight how much extra working capital they may need.”
In a slowing economy, the financial institutions will be less likely to provide credit to small firms. “Therefore, it is essential that funding through the SBCI and MicroFinance Ireland continues. In addition, we would welcome, as promised in Budget 2019, the introduction of the €300 million long-term future growth loan scheme partnership to provide eight to 10-year loans between the Departments of Business, Enterprise and Innovation and Agriculture, Food and the Marine.”
Overall, however, SMEs appear better prepared for Brexit than might have been thought – and that must be good news.