22 Feb 2017By Mark Hayhurst
When the going gets tough, the tough get going - time to take a Brexit audit, says Anna Blewett
However you imagined the future when you stood at the ballot box last June, you won’t have voted for what we got: an extended period of damaging uncertainty during which relations with the European Union will surely be left distinctly sour.
The gloves are well and truly off as our leaders disentangle our legal, regulatory and economic ties with 27 other member states. We all look to a brighter, better future beyond Brexit, but until the dust settles there’s a job of damage limitation to be done. Time to get started.
REVIEW YOUR COSTS, IN DETAIL
“In craft, as in so many markets, a significant number of the goods being sold are either imported or have a significant content that is imported,” says Kenneth Parsons, director of the Rural Shops Alliance. “The likely increase in cost are, to my mind, going to be the major impact from Brexit. The margins in craft are higher than in other sectors, groceries for example, so there’s some potential there to absorb some cost without passing on the increase to customers. Equally one could argue that margins are higher because the costs of the supply chain or marketing of those goods are higher.”
The answer? Trim the fat from your operations.
“Dig into the detail and assess all your business costs and where you can streamline processes,” says Mark Clisby, marketing director at Yell Business. “Is there any staff restructuring or consolidation of roles and responsibilities you could implement? By streamlining your business costs, you make your business more competitive and profitable. You could then consider re-investing any cost saving in new technologies that could make your business run easier, faster and more cheaply.”
PREPARE FOR A WEAKER CURRENCY
“The pound has lost almost a fifth of its value against the dollar since the referendum in June and it could fall even lower,” points out Mark Clisby. “This means supplies from abroad will be more expensive and sales to these countries become cheaper for the buyer. SMEs may find that sales increase but margins have shrunk. Our advice is re-forecast your business numbers and see how different scenarios impact profit and cash flow. Look into whether it’s worth establishing currency accounts or opening accounts in established foreign banks.”
You will probably already have had spirited discussions with reps or wholesalers about price rises, but if you have your own direct buying relationships with manufacturers on the continent there are steps you can take. “SME’s that are vulnerable to currency fluctuations should look to protect their position by using a forward contract option,” suggests Jonathan Watson, chief analyst at Currencies.co.uk. “With Theresa May set to invoke Article 50 in March, the pound may suffer further losses against the euro and US dollar. A forward contract allows a business to lock in a rate of exchange for up to two years, conveniently the expected duration of Brexit negotiations.”
CONCENTRATE ON EXISTING CUSTOMERS
A weaker pound isn’t the only danger for our economy, says Jonathan Watson. “Higher inflation, as predicted by the Bank of England, coupled with low wage growth would hit consumer spending and dent business profits.”
In other words, it’s time to nail down any vulnerabilities in your business to see you through the uncertainty ahead. “Start by measuring your current attrition rate and looking at ways to reduce or eliminate it,” says Mark Clisby. “This isn’t a five-minute task; it will take some time and a lot of testing, but it is worth it, especially if your attrition rate is high. The cost of acquiring a new customer is considerably higher than retaining the ones you have. Re-evaluate your marketing to existing customers and set up a customer feedback forum. Contacting previous customers to ascertain why they do not buy from you can prove useful too.”
“Political turmoil since the referendum will have had an impact on business confidence,” said Federation of Small Businesses chairman Mike Cherry when announcing its small business index for the third quarter
of last year. “However, many small businesses seem to have factored in the potential result of the referendum in advance of the vote.”
This flexibility to react to unexpected events will be key in the months ahead. Right now, many believe it’s not yet time to leave the bunker. “Irrespective of your view about whether leaving the EU was the right or wrong decision, the tenor of what Theresa May is saying strikes me as not ‘go out and grab these massive opportunities’ but damage limitation.That has to colour demand for discretionary purchases for many years to come. All businesses, in the current uncertainty, will be hunkered down waiting to see what will happen. Many of the real impacts of leaving the EU won’t hit home for five, ten or 15 years one suspects.”
Your most successful competitors will be those that offer customers a reassuring message, essentially ‘keep calm and carry on spending’.
It was, after all, the financial crash of 2008 that gave rise to the phrase ‘cocooning’: insulating oneself from dark realities and turning to life’s small pleasures – knitting, journalling, sending cards – for comfort. It’s surely no accident that ‘hygge’, the Danish concept commonly translated as ‘cosy making’, was the big trend that coincided with the referendum. Craft is a category uniquely placed to benefit. Low financial input = high emotional return.