A forward-looking and robust financial and operational plan will bring benefits to any businesses in the South if they are to get a better handle on the potential impacts of Brexit.
Greg Palfrey, who leads restructuring and recovery services for Smith & Williamson in the UK, says there are businesses which have not yet got to grips with the new economic reality.
Mr Palfrey, who works out of the South Coast office in Southampton, highlighted the issues to scores of business leaders at business breakfast seminars hosted by Smith & Williamson, the accountancy, investment management and tax group, in Southampton, Portsmouth and Bournemouth.
He told them: “Many people did not expect, or plan for, a Leave result in the EU referendum. This lack of advance planning, weaknesses in management information and the economic events following the referendum has made decision making difficult for senior management.
“We have already seen businesses in a number of industries showing signs of cash pressure as well as concerns about long-term viability from changes in, for example, exchange rates.”
Afterwards, Mr Palfrey said: “There are companies which trade with the EU but still haven’t got to grips with the reality of this very uncertain period, even though the Brexit process is scheduled to formally begin before next March with the triggering of Article 50.
“Whilst we do not know what will be in any agreement reached, companies should prepare for any situation by putting together robust financial models based on existing terms of trade and expectations.
“When the details are known and such terms or other factors/variables change, then the model can be re-run to reflect this and the company can then measure the impact and take actions, where possible, to mitigate or exploit the change.”
Mr Palfrey added: “There are EU-facing companies we know of, seemingly well run on the surface, where their management information is poor or, worse, non-existent. One firm ceased to trade when the exchange rate changes masked a serious deterioration in profitability and immediate cash requirements.
“Indeed, as the value of the pound has fallen there are increased overheads and costs for companies which pay for services or goods in foreign currencies, not just from the EU but other parts of the world as well. Now, more than ever, businesses need to focus on the ability to spot and deal with changes that occur and to understand what this means for them.
“Businesses need the information to understand exactly where they are now, the potential impact of changes and a plan for how to manage that and even benefit from it going forward. Unless businesses grasp the post-Brexit nettle and think about financial forecasting, including exchange-rate fluctuations, some companies here in the South will see their trading and cash positions deteriorate.”
Having a robust and tuneable model allows this to be done quickly. A good model takes time to develop so businesses need to be ready, Mr Palfrey stated.
Sterling dropped nearly 20% in value against the dollar since June 23, although official UK output figures for the third quarter of this year, taking into account the period after the Brexit vote, showed an unexpected 0.5% rise in growth, with economic data broadly positive.
Mr Palfrey said: “Whilst it may take many years before we know exactly what Brexit actually means on the ground, good or bad, local businesses with exposure to the EU need to crack on with remodelling their figures.
“For example, we’re already seeing the ‘Marmite’ affect, where household items are rising in price as producers and manufacturers look to maintain profitability on lines to offset currency exchange hits. It is these kinds of fluctuations that need to be factored in.
“The message is simple – your management information should be top-notch, with accurate and timely information to drive business performance and identify risks immediately so that actions can be taken.”
Mr Palfrey suggested that good, basic and proactive management information could be presented as a risk dashboard for clear understanding.
From that information can come strong budgeting and forecasting, forward planning, the ability to react quickly, strong cash management and a relevant business plan.
“Despite many companies not needing an audit, accounts are critical to good information. A good accounts package, system and team are crucial.”
Figures from the Office for National Statistics showed that 44% of the UK’s goods and services, valued at £223.3 billion, were exported to the EU in 2015, while 53% of our imports, valued at £291.1 billion, came from the EU.
For countries outside the EU, UK exports that year were valued at £288.2 billion and imports stood at £257.1 billion.
Latest advisory assignments for Mr Palfrey’s team include oil and gas, printing, the motor trade, independent schools, financial services and manufacturing.
