As soon as the result of the Brexit vote was announced the stock markets went into meltdown and usually calm business owners were fearful of what the next few years may be like. Fast forward to now and FTSE 100 is performing strongly and UK is expected to be the fastest growing economy in the G7.
The one economic prediction that the experts do seem to have got right was that the pound would be significantly devalued post a victory for the Leave campaign. Whilst much has been written about the opportunities this provides for exporters little has been said about the issues it may cause for British business owners.
The weaker pound
Since the Brexit vote, we have seen the value of the pound continuously decline against the euro and the dollar to some of the lowest levels in recorded history. Pre-vote, massive levels of hedging were taken out to anticipate short term exchange rate fluctuations. However, as these buffers start to unwind, the full impact of such a decline is only now becoming visible. And with the seeming intention of Theresa May to invoke a ‘Hard Brexit’ situation, these fluctuations are likely to continue for quite some time.
Chief Market Analyst Naeem Aslam summed up the situation when he stated that ‘Hard Brexit has haunted sterling’. Many experts forecast that the pound could actually reach parity with the Euro by the end of the year – a situation not even considered since the latter end of 2008.
The ‘Flash Crash’ on October 7th epitomised the volatility the financial sector is currently experiencing. Yet while many business owners have considered the impact of Brexit on exchange rates at a macro scale, very few SME’s in our experience have given serious thought to the potential impact on their own direct and indirect trading partners.
Discover the facts
Initially, the focus within UK organisations was to ensure that their own internal practices were strong enough to endure the Brexit decision. However, as the situation continues, there are many more questions that need asking of those that support your business operations externally.
These questions need asking now.
Have you considered whether your suppliers will be able to survive if exchange rates remain at current levels? What contingency plans do you have in place if they don’t?
Will your customers be in a position to maintain current levels of demand in the face of further exchange rate volatility?
As general inflation increases how are you going to deal with the wage inflation that is likely to follow?
There may be a need for price renegotiations with key suppliers as your or their current hedging arrangements come to an end and $1.25 becomes the new norm. These changes will undoubtedly impact the entire supply chain and so early conversations are crucial to reaching agreements that work for all parties.
Any delay in making such changes could force your business to absorb increased levels of costs, risking significant periods of reduced profits or worse still losses.
Take action now
In any situation, getting the information necessary to make effective business decisions is about asking the right people the right questions, at the right time. Now is the right time for these investigations to start.
Have a chat with our consulting team to find out how they can help you have more productive board meetings. It could be the only way to ensure you have the information you need help your business achieve sustained growth and keep your business secure.
