How Brexit may affect scaling SMEs


What impact the fallout from Brexit will have on the nation’s scaling SMEs still remains largely uncertain. To gain some insight, we’ve asked Richard Litchfield, Head of Operations at P2P lending platform Lending Works, for his thoughts.


With the UK set to leave the European Union on Friday 29th March and still no certainty in sight, it’s hard to know what kind of Brexit we’ll be left with. From an SME perspective, Brexit will bring with it both threats and opportunities, but we think the latter will outweigh the former. Though we can’t say for sure what will happen, we can make some informed predictions based upon available information to try and understand how SMEs might be affected.


EU Trade


While we still don’t know what our future trading relationships will look like, we know that businesses that export directly to the EU and are involved in European supply chains will face greater risks than those who only operate domestically. That said, with such enduring uncertainty so close to the UK’s departure from the EU, there is every chance that the fallout from a disorderly Brexit could affect most if not all of our SMEs in one way or another. The ramifications for tariffs, supply chains, cost bases, capital investment, and access to external finance could all have a huge impact on businesses of all stripes looking to scale, but those that currently rely on the EU will face the most challenges.


Reserve funds


While there are many things that are out of the control of SMEs, one thing which is not is liquidity. Aside from potentially impacting turnover, there is a risk that investment levels in the UK could fall after Brexit. It is generally much harder for SMEs to pass on costs to their customers if overheads from tariffs and supply chains increase, so the best thing small firms can do to mitigate any potential short-term disruption is to have the necessary reserves in place to deal with any headwinds. Should everything go smoothly, and this contingency not be needed, SMEs will then be well placed to unleash these reserves and invest in future growth.


Access to talent


Maintaining the right level of staff will largely depend on each sector. If you’re satisfied with your current employee structure and think that the cost of wages won’t place any undue pressure on your company in the event of a downturn, then you’re in a strong position. That said, it is a tough balance to strike. We know that the availability of talent will shrink post Brexit as the UK leaves the single market, and future rules will likely hinder some firms. You want to be sure that you maintain the best possible levels of expertise to exploit post-Brexit opportunities, without leaving yourself unduly exposed.


New opportunities


Although the level of each SME’s dependence on the European market varies, it makes sense for those that export to look for opportunities further afield. We continue to have strong ties around the world in the Americas, the Middle East, and the Far East, so start looking for opportunities beyond the continent in terms of trade, partnerships, and technologies. Although the European market will continue to be important to the UK for the foreseeable future, exports to the rest of the world are continuing to outpace those to the EU. Regardless of whether Brexit goes smoothly or not, there will be ample opportunities that emerge.


Backing Britain


From our perspective as an SME, we believe that Brexit brings with it both positives and negatives but, in the long run, Britain will be able to succeed. There is every chance that Brexit could offer scope for further competitive advantage for the UK’s innovative, flexible, and versatile SMEs, which are best placed to respond quickly and effectively to economic and regulatory changes compared to large corporations. Our preference back in 2016 was for Britain to remain a member of the EU, but we also believe it is important not to underestimate ourselves. Our tech sector, for example, is a global leader, and a hub of excellent talent and technology. It is difficult to foresee that changing anytime soon, and this is one of the springboards upon which our SMEs can flourish.


Like all businesses, we will be watching developments closely. But, in truth, our take is that SMEs have less skin in the Brexit game, and are therefore well placed to continue with the impressive rates of expansion that we are currently seeing. We hope this continues as entrepreneurship and innovation are vital for our economy.

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