FOR IMMEDIATE RELEASE
By Alex Littner, Managing Director of Boost Capital
Since Britain voted to leave the European Union, sterling tumbled in value and remains in a crippled state. It’s a mixed blessing for UK companies - no one likes the uncertainty the Brexit decision has created, but for exporters the weakened pound is a great boost to business. However, for importers, it’s a different story. The cost of foreign-bought materials has significantly increased for many of these enterprises. UK imports are down on the months before the referendum vote, according to the latest official trade figures (https://www.uktradeinfo.com/Statistics/OverseasTradeStatistics/Pages/OTS.aspx ). Many importers are feeling the pinch – import prices significantly grew after the June 23rd vote (https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktrade/july2016#export-and-import-prices-for-trade-in-goods-not-seasonally-adjusted ), and some importing firms are already placing fewer orders.
What can British importers do to limit the damage caused by this currency crisis?
It’s not surprising that many SME importers’ reaction to sterling’s precipitous fall in June was to hedge themselves against further currency fluctuation. UK businesses’ willingness to seek currency protection rose by ten per cent in the days after the vote, according to World First data (https://www.worldfirst.com/downloads/GlobalBarometer2ndEdition.pdf ). Fixing prices via a currency strategy has become an absolute necessity for British firms buying in other currencies.
Whether it’s opening a bank account in the country from which a company buys goods or materials, locking in to a currency forward contract to set an import purchase price at a particular rate, or effectively second-guessing what currency rates will be via futures contracts or currency options, sensible importers will already have some hedging tool in place to limit the ongoing damage of a volatile pound. Those that haven’t should do so without delay. The one thing that’s certain about the Brexit situation is that nothing is certain, and sterling may be in for a bumpy ride for some time to come. Act now - if you haven’t already – to defend against further currency fluctuations.
This won’t be a popular move with many business owners, or their customers, but passing on the pain of lower profits in the form of higher prices may be necessary. Consumers might not feel the effects of this on the high street yet, but as the hedging arrangements mentioned previously start to expire later this year or early in 2017, many businesses importing goods from overseas will be forced either to up their prices, or resign themselves to lower margins on what they sell.
Clothes and food are already predicted (https://www.theguardian.com/business/2016/jun/25/brexit-raise-cost-of-clothing-and-food-warns-next-boss ) to become more expensive as importers struggle with higher overheads – a difficult decision for traditional retailers already suffering from the growing popularity of online shopping, plus the prospect of people spending less for fear of a Brexit-led recession. Some companies may lose custom as a result of upping their prices, but if the alternative is being out of pocket themselves, they will have little choice.
Don’t forget that many of those that import also export, buying in raw materials from overseas, making their products, then selling their wares to other foreign markets. The benefits such companies will currently be experiencing from their exporting endeavours – with their products looking cheaper and therefore more attractive in the global marketplace – may go some way to offset the disadvantages they’re encountering in terms of inflated import costs.
If a company is in this favourable position, it would be wise to up their exporting efforts. Export orders in Britain have already seen a marked boost in the second quarter of the year, according to the manufacturers’ organisation the EEF (https://www.eef.org.uk/campaigning/news-blogs-and-publications/blogs/2016/sep/manufacturing-outlook-after-brexit ), and business owners are optimistic for further growth in overseas sales in the months to come. Taking advantage of this currency-driven export bounce could ease some of the pain of any increased import-related bills.
Keep the cash flowing
Finally, a business is nothing without a healthy cashflow. Efficient financial management has never been more important, so make sure an enterprise’s costs and income are clearly understood and absolutely up-to-date. Undertake regular cashflow forecasts to see well in advance if money is likely to run out. Short-term borrowing (http://www.boostcapital.co.uk/small-business-loans-uk/ ) to cover the newly inflated costs of importing or any looming shortfalls in funding may be necessary to keep a business in good shape, with ready finance available.
Further down the line in the Brexit fallout, it’s possible UK importers may have to pay customs duties on goods bought from EU member states, though this will depend on whether Britain manages to negotiate a free trade agreement with the rest of Europe. Such an outcome could itself have an impact on cashflow due to the delay between payment of any customs charges and the ability to reclaim the sum as input tax on the next tax return. However, such details are all yet to be agreed, so SMEs will have to wait to see what any new tax-related regulation says.
Times are tough for importers in a post-Brexit world, but they need not be bleak. Good business sense, strong financial planning, and strategic thinking will carry many businesses through. And SMEs can take heart that there are more business funders available to support them than ever before. Face up to the reality of the business situation, and research the help that’s out there to weather the current currency storm.
Tel: 01245 240 881
Willem van Lynden
Sales and Marketing Director
Tel: 01245 240 885
As a specialist small business lender, we're champions of the SME sector. We are here to help UK SMEs achieve their full potential by providing fast, flexible, and hassle-free small business loans.
We have over 14 years' experience helping SMEs with their plans to grow. We've helped more than 14,000 businesses across 400+ industries, and have funded more than £750m.
20 Dec 2016 09:30
16 Dec 2016 10:45
For more information on JournoLink and how to receive more content like this, please visit https://journolink.com/journalists.