How will Brexit really affect SMEs?

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Given the drawn-out and arduous nature of Brexit negotiations, there’s a temptation for SME’s in the UK to bury their heads in the belief that any kind of resolution is still light years away.

While little progress has been between the UK and their EU counterparts (even with the thorny issue of trade tariffs yet to be discussed), Prime Minister Theresa May has set a deadline of 9th March, 2019 for a deal to be agreed. At this point, Britain could either have agreed an amicable agreement or chosen to leave the European Union without a deal.

Either way, there’s no doubt that the final manifestation of Brexit will impact SMEs. Here’s how:

The potential downside of Brexit

Britain’s 5.4 million SMEs are undoubtedly anxious at the prospect of Brexit, and there are genuine reasons for this. Businesses that trade excessively with remaining EU members states could lose out on multiple fronts, for example, as the UK will either face less favourable trade tariffs or (in the event of leaving the single market without a deal) be forced to revert to the terms laid out by the World Trade Organisation (WTO).

This will increase the cost of buying and selling goods within the EU, heavily impacting SMEs with lower profit margins. This effect will be compounded by the underperforming British pound (GBP), which has continued to trade in a narrow range since the EU referendum result was announced. Currently, the GBP is expected to fall within 5 cents of parity with the Euro (EUR), while it will also maintain ground around $1.30 with the U.S. Dollar (USD).

With a weaker pound, the cost of importing goods and materials will rise considerably, so SMEs may need to think fast and consider amending their pricing structure in the build-up to Brexit. It’s also crucial that entrepreneurs use resources to follow the fluctuations of the pound, so they can create an accurate and agile fiscal strategy.

Are there positives that may emerge from Brexit?

Despite these considerable challenges, change always brings opportunity for the most proactive SMEs. Brexit will be no exception to this rule, as it will put firms in a unique position to serve customers who like to invest in local produce and materials. This will also reduce the cost of commercial operation post-Brexit, negating the issues posed by the devaluation of the GBP.

Similarly, it may be argued that Brexit will enable SMEs to operate without the restrictions imposed by intricate EU law. This could also reduce business costs, particularly when smaller firms are required to tender for work with the local authorities.