Despite many declarations from various economists, government groups and corporate figures, the long-term effect that Brexit will have on the UK’s small to medium enterprise (SME) businesses is still largely unknown.
Plenty has been said about how Brexit will impact smaller companies. After all, SMEs are the lifeblood of the British economy, making up more than 99 per cent of our private sector business.
Brexit will undoubtedly bring challenges for SME’s and looking below the surface it’s clear that it can also create huge opportunities, but this has largely been ignored by commentators on the topic so far, mostly seeming to prefer the doom and gloom approach.
Capital is the lifeblood of any business, and raising it tends to be an area SMEs struggle with, particularly in a new business. Recent research found that 30% of SMEs find raising finance to be the biggest obstacle to setting up a new business. This difficulty is exacerbated by the attitudes banks have to these growing enterprises; in fact, more than half of UK SMEs describe banks as being unfriendly to businesses.
However, the pound’s deprecation in value in the wake of Brexit may provide a solution to this issue by encouraging a fresh wave of inward investment, thus creating other avenues for growth. As a result of the weaker pound, private equity firms will be able to invest far more in UK business.
Another positive aspect of economic downturn, which is not often spoken of, is the growth prospects it creates for entrepreneurs. Small business owners have historically thrived during periods of financial instability, largely due to being leaner and more flexible than more established organisations so they can quickly and effectively adapt to changes in the market.
The fluctuating exchange rates created by Brexit have made British goods and services more affordable for international buyers, which provides additional opportunities for businesses who export their goods and services abroad. In fact, one in four SMEs report improved exporting opportunities. This is further backed up by research from PayPal, which revealed that SMEs saw international sales treble due to the post-Brexit currency slump
Employment may also be severely affected after we leave the EU. Are we heading for the predicted talent crisis? While this is a little melodramatic, these reports are not entirely inaccurate; we’re likely to see a shortfall in skilled workers once we leave the EU.
VAT is an area of massive uncertainty. No VAT is currently levied on trade within the EU: it is only charged when a good is sold to the final customer. If the UK were to leave the EU VAT regime without agreement, business could be required to pay VAT upfront on goods imported from the EU (and vice versa). For around 130,000 British companies, mostly small and medium-sized enterprises, this would be the first time they pay upfront import VAT.
This change would create both cash flow and time burdens, which would be particularly costly for small businesses.
British companies trading across the EU in services would be hit as well. They would need to become VAT-registered in each member state where they operate. At present, being registered in one-member state is sufficient to trade in all.
Watch this space for more information