Why UK SMEs Can’t Afford A Laissez-Faire Brexit Approach

Brexit hasn’t seemed to have had the massive impact on business analysts warned about — yet. Recent commentary from The Wall Street Journal when covering this month’s Association of Corporate Treasurers’ (ACT) annual corporate treasurer conference concluded corporate treasurers aren’t as concerned about Brexit as they are other things, like technological innovation. Separate analysis from BDR Continental released last month found U.K. small businesses continue to stay confident despite the U.K.’s exit from the European Union.

But analysts warn that many of the effects of Brexit aren’t likely to be immediate, and the negative implications of the deal may catch businesses large and small off-guard if they remain oblivious.

Treasurers at the ACT conference said they were confident in companies’ ability to handle the transition — if they plan accordingly.

“From a practical standpoint, companies have got to do their contingency planning, but in the expectation that things are going to be business as usual in reality over the next potentially five years,” said Paul Watters, S&P Global Ratings head of Corporate Research, when he was speaking at the event.

Reports noted that it is common for companies to request cash management strategies from their banks and advisors for up to 10 years, with these initiatives covering 2019 Brexit and beyond. According to reports, bankers at the ACT conference said they have been receiving some requests about post-Brexit services they might be able to offer their corporate clients.

“These companies are trying to feel their way and getting a different view from U.S. and European banks,” said one banker, according to reports. “Some banks are not flexible because of Brexit.”

EU treasurers are reportedly not concerned about a lack of access to U.K.-based financial services.

“Europe is overbanked. Companies don’t really care; it’s not an issue for them,” another banker reportedly said, adding that businesses are more concerned about trade between Europe and the U.K. being affected.

This focus on cross-border trade, however, is emerging as a larger Brexit issue for businesses today, separate analysts suggests. So while large corporates and their treasurers are taking a gradual, wait-and-see approach to the impact of Brexit on cash management, global trade may see more immediate and drastic effects, especially for businesses that don’t prepare.

Research released last week from the Chartered Institute of Procurement and Supply (Cips), for example, found that future business plans are being shaped by Brexit. Nearly half of European businesses plan to cut ties with U.K. suppliers, instead opting for EU-based vendors.

Meanwhile, U.K. companies are showing a mirrored effect, planning to cut ties with EU-based suppliers in favor of local ones.

Overall, managers told Cips, U.K. companies are in a “weak negotiating position.”

“Diplomats on either side of the table have barely decided on their negotiating principles, and already supply chain managers are deep into their preparations for Brexit,” explained Cips Group CEO Gerry Walsh. “Both European and British businesses will be ready to reroute their supply chains in 2019 if trade negotiations fail and are not wasting time to see what happens.”

Supply chain professionals’ forward outlooks could signal major disruption ahead. More than a quarter say they are mapping potential costs of trade tariffs as a result of Brexit, while a fifth said they are looking for non-EU suppliers. Nearly a third said they are looking for non-U.K. suppliers.

Supply chain disruption seems inevitable as a result of Brexit, but perhaps the most telling statistic from Cips’ latest report is that nearly a quarter of professionals say they have not done anything to prepare for Brexit.

“The separation of the U.K. from Europe is already well underway even before formal negotiations have begun,” Walsh warned, pointing to the impact a weakened sterling made on supply chains and trade contracts.