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THE ULTIMATE BUSINESS GUIDE TO BREXIT

Contents 03 Foreword 05 Brexit in Context 08 Navigating Brexit: Currency volatility 09 Brexit Roadmap 10 Simon Willmett

Nucleus Commercial Finance 10 Financial Planning and Business Strategy around Brexit 11 Business Cost and Brexit 12 Dealing with the Brexit Turbulence

15 Mark Abrams

Trade Finance Global

15 Trade and Brexit 16 Navigating cross-border trade challenges around Brexit 17 Brexit and Trade

19 Appendix


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THE ULTIMATE BUSINESS GUIDE TO BREXIT

FOREWORD Deal or no-deal, key uncertainties face many businesses With the current situation following the series of recent votes and political shake ups delivering yet more uncertainty, businesses could be forgiven for a feeling of paralysis and being back to square one. Whatever happens in the coming weeks and months as the 29th March draws closer, SMEs cannot afford to be ‘caught short’ and this guide is designed to enable business owners and directors to safeguard their companies as best they can in the face of turbulence and uncertainty. The UK is still scheduled to leave the European Union on the 29th March 2019, but with a ‘no-deal’ scenario still possible, there are still many unanswered questions which could leave businesses in the dark. Despite

the UK government producing a ‘nodeal’ partnership pack as well as a series of technical notices, there are still many key unanswered questions. Ever-relevant however is the need to support British businesses with their preparations. With much higher-level decisions being the focus for most discussions, the business community could be forgiven for feeling like an afterthought. Yet, can our government afford to treat it like one? And, just because there are no clear answers, can businesses afford to wait for it all to play out? There were 5.7m private sector businesses at the start of 2017, with small businesses accounting for a staggering 99.3% of all these, and 99.9% of those being small or medium-sized (SMEs). These businesses really are at the heart of our nation and form the backbone of our economy and it’s them that we must rally round.

What are the key issues? Britain has long been attracting talent to its innovative and agile small


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THE ULTIMATE BUSINESS GUIDE TO BREXIT

businesses, with one of the most diverse and enriched workforces worldwide – any impact on this could be detrimental and this is just one area of concern with the planned departure. As well as ensuring that international employees continue to be welcomed to our shores there are a number of other key areas that could be impacted. Businesses need to take a step back and scrutinise their processes. They need to be evaluating all areas of their strategy, stress-testing their financial solvency and preparing for a range of potential scenarios. For those that have already begun, this level of attention is bound to result in ‘tighter-run ships’ and mean that any issues discovered will be rectified. But what about the nearly 50% who have not yet begun. How to prepare when you do not know what to prepare for? More pressing perhaps, how to prepare when there is no help or guidance for such a situation? Speaking to business owners, some have made contingency plans and begun preparations, but many have not. They are carrying on, business as usual, claiming they have too little information on which to base any preparations. Although understandable the time for waiting has now passed. Although there is no more clarity, businesses must take action for themselves. Due to the lack of clarity provided by the Government it could be tempting to ‘sit tight’ and only take action once clear and decisive path of action has been confirmed but such a wait and lack of preparation could risk exposing businesses to bigger threats.

The role of the media The British media have come under fire for their coverage of Brexit. Sensationalism and a doom-and-gloom attitude that has gripped the nation and its small businesses in fear for much of 2018 is not helpful for business owners attempting to safeguard their livelihoods. There has also been a distinct lack of practical, tangible and actionable tips and guidance for business owners to prepare with. This lack of clarity and fearmongering has been compounded by incessant talk of the worst-case scenarios and, paralysed by this fear, many businesses have freely admitted that they have not begun preparing for exiting the European Union at all. In addition, according to recent research by Sage and YouGov, 40% aren’t sure when they will begin to prepare and 34% do not know how long preparation will take. On top of this 45% admitted that Brexit is impacting their confidence and that will always have an obvious knock-on effect on business performance.

So what can companies reasonably do when clarity is in such short supply? The Ultimate Business Guide to Brexit has been planned with business owners and senior decision makers in mind. In the face of adversity, sensationalism and a lack of clarity our experts can deliver strategies and tips to prepare a business for any turbulence experienced due to Brexit. With a wealth of experience in areas such as international trade; cash flow, finance and business strategy; employment law and global mobility; currency and foreign exchange, as well as small business trade organisations, this digital guide is a true bible for any business weathering the Brexit storm.


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THE ULTIMATE BUSINESS GUIDE TO BREXIT

BREXIT IN CONTEXT Chris speaking at the Brexit Business Guide event in October 2018.

CHRIS SOUTHWORTH Secretary General of the ICC United Kingdom

We heard from Chris Southworth, Secretary General of the ICC United Kingdom, at the Brexit Business Guide event. The International Chamber of Commerce (ICC) is the largest world business organisation representing 45 million companies and 1 billion employees in over 100 countries. The ICC represents business at inter-governmental level and is the only business organisation with UN Observer Status. Working with organisations such as the Confederation of British Industry (CBI), the British Chambers of Commerce (BCC) and the Federation of Small Businesses (FSB), the ICC United Kingdom supports British businesses so their voices are heard by the United Nations (UN), G20 and World Trade Organisation (WTO). Chris shared his perspective on how Brexit is affecting the rest of the world.

Brexit, what? For the past two years, while the rest of the world has been moving on, the UK remains stuck in this “parochial conversation around Brexit”. For the most part, the debate has centred on the UK from a national perspective, with little engagement by UK trading partners or acknowledgement of broader global priorities. We are in the biggest trade crisis since WWII: global economic growth is slowing, half the G20 is now openly promoting nationalist and protectionist agendas, the two largest economies are in the throes of a trade war, and the world trading system is under threat. Most businesses overseas are confused

by Brexit and just see the political chaos, primarily because Brexit has never made any sense from a trading perspective. While the rest of the world is working to strengthen regional trading blocs, the UK is going against the grain and rendering itself a far less attractive place to do business, by cutting its ties with Europe. It’s hard to see how the UK will have leverage sufficient to replicate the benefits of the latest EU trade deals with Canada, Japan or Korea. Most countries will see an opportunity to negotiate better terms to access the UK market, and countries such as India or China will likely prioritise a deal with the EU first. All of this will mean delays, even before the UK has negotiated the 100 deals


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needed to get back on a level with the EU, not to mention the negotiations required with the USA and China – all of which could take over a decade to complete. In the meantime, the UK will experience disruption and uncertainty, which will prove detrimental to both trade and investment.

reform. Here, there is opportunity for progress. Focus should be directed at such initiatives, and support given to the institutions that are working to implement the respective policies.

What the UK does have in common with the rest of the world as a result of Brexit, is a slowdown in trade, rising protectionism, and geopolitical uncertainty. More disruption and uncertainty will only serve to further erode confidence, and the UK will win few friends in the process. It is the worst time to go out alone, without the leverage and backing of the other EU members.

In truth, it is impossible to say. In theory, all options are still on the table. What we do know is that a hard Brexit will be universally damaging, adversely affecting the UK, the EU, and the UK’s other trading partners. A hard Brexit would be most keenly felt in the poorest and marginalised communities across the UK, affecting job security and the survival of many of the UK’s small enterprises. If the UK comes out of the Single Market and Customs Union, it will be businesses that bear the burden of responsibility for tax, customs declarations, duties, tariffs and quotas. All the additional paperwork will need to be completed on goods before they arrive at export transit points across the country. Sectors where tariffs are higher – such as agriculture, food, drink and automotive – will likely be worse affected. And the higher associated costs must either be absorbed or deflected to the end-customer, which will either damage competitivity or increase living costs.

We’ve witnessed an earthquake in the political landscape, with a dramatic polarisation of the right and left, and a decimation of the liberal middle, which had long been the advocates of international trade. In the UK, despite the rhetoric around trade, the shift has been predominantly on ideological grounds, rendering it increasingly difficult for businesses to engage. One thing we can all agree on, is that the benefits of trade have not been properly distributed. For this reason, the global community is now advocating a more inclusive form of open trade, one where the benefits will stretch beyond just business. It’s unlikely there will be a return to liberal politics in the near future – the impact of which would be felt most keenly in institutions such as the WTO. Over the last 12 months, we have also seen a noticeable increase in more nationalist-focused trade representatives in Geneva, which will make trade negotiations harder. That said, there are areas where there is political consensus - digital trade, investment facilitation and trade

Brexit: What are the options?

Our current position signals a lack of understanding around trade function in the context of a modern economy, and of the implications that changes can have on both businesses and consumers. The full burden of cost will come long after Brexit has happened and will impact most on the least resilient in society. Some have posited Singapore as an example model for the UK’s future. But Singapore is effectively a city state, without the complexity of industries or supply chains of the UK. This argument also


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doesn’t account for the role of small business, consumers and civil society. Lowering tariffs would invite cheap imports, putting UK companies out of business, and in the case of food, render the market vulnerable to lower standards of produce. It was only in 2016 that the Transatlantic Trade and Investment Partnership agreement was torpedoed in a matter of weeks due to the possibility of public services being opened up to foreign ownership, and chlorinated chicken being on the shelves of our local supermarkets. Trade now touches all corners of the nation. The UK cannot create its own independent trade policy without an inclusive governance model that is transparent and democratic in its approach. Without such a model, the 100 plus trade deals required to make Brexit a success, look increasingly unlikely. “There is no question that there is a demand for British goods and services abroad – anyone who has travelled overseas knows that. New trade deals may benefit some businesses, but it doesn’t change the fact that the world is a more competitive place than it was before the UK went into the EU. A host of middle-income countries can now produce goods and services to as high a quality as those produced in the UK, which is why the UK’s share of the global market has fallen over time.” The UK is competitive, but its position is not invulnerable. Even a 1-3% increase in cost will impact the decision making of an investor when weighing-up whether to do business with the UK, Germany, the Netherlands or France. Business leaders must step forward into the political vacuum and make the case for trade. There is an opportunity to scale up engagement with international institutions so as to speak up for UK businesses and to make

progress on digital trade, investment, trade reform and sustainability – all of which UK industry is well positioned to capitalise on.

How the ICC can help As the largest business organisation in the world, championing inclusive, open trade and engaged with all the major institutions, the ICC can help support the interests of UK companies, particularly in conjunction with UK business organisations. Overseas delegations are a great way to learn how to navigate the new landscape post-Brexit, providing open forums in which companies can learn from each other and benefit from the ICC’s expertise. We will have two large postBrexit events in London on the 4th and 20th June to help companies engage with international business leaders, and to understand how to scale up international engagement and operate in the WTO. We will also lead 3 UK delegations to UN Ecommerce Week in April for those interested in digital trade, to the WTO Public Forum in the Autumn for trade and investment, and the UN in New York to showcase private sector delivery of the UN Sustainable Development Goals. In all activities, we work with UK business organisations and government to ensure companies get as much support as possible.


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THE ULTIMATE BUSINESS GUIDE TO BREXIT

NAVIGATING BREXIT: CURRENCY VOLATILITY ANDREW LAW Senior Dealer, Moneycorp

Currency volatility with particular reference to Brexit has only served to complicate an already challenging landscape for companies who are involved in foreign exchange. Brexit has highlighted the importance of the finance function within companies. Rather than being considered as just a cost centre for the organisation, finance teams should be involved in helping to shape strategic direction. Whilst Brexit has actually helped focus the attention on the finance function, policies in that area, such as treasury policies and the implementation of cash flow forecasts are vital and must be documented. THE BOARD OF DIRECTORS MUST TAKE OWNERSHIP A fundamental requirement for a company’s continued success is the ownership by its board of directors. Taking cash flow forecasts as an example, a business must ensure this is fully owned by its board and fed through to people who are transacting with the business. The focus for the board is to always fully measure the risks that it has and then manage them. Without understanding all of the risks, it becomes very difficult to trade in foreign markets.

HEDGING MAY NOT ALWAYS BE NEEDED Whilst currency hedging can help mitigate the effects of currency volatility, it may not be appropriate for all organisations. For example, a travel company transacting between 10 - 15 million pounds per week on Spot Foreign Exchange, recently made the decision not to hedge. This strategy was taken by its board based on the results of proper stress testing. If your stress test shows that you can afford to lose a certain amount of money and your margins on your business are appropriate, then hedging may not be needed.

FORECASTING RATHER THAN PREDICTING IS CRUCIAL World affairs will always play a fundamental role in influencing currency positions and Brexit is just one small component of that, often dynamic, storyline. In this respect, the importance of forecasting rather than predicting is crucial. Companies need to make informed decisions about the direction of exchange rates to inform their business strategy and must ensure they remain reactive.

PRACTICAL EXAMPLE Taking a practical illustration of the effects of the Brexit decision, if you think of a UK importer who needed to sell a million pounds of dollars two weeks before the Brexit referendum, with their focus on cash flow that was two weeks forward of that date. Two weeks before the referendum the price was $1.45, two weeks after it was $1.30, so an immediate cost of $150,000. UK exporters would have obviously benefited from the drop in value following the referendum.

3 top tips for companies

1.

FINANCIAL HEALTH

2.

POLICIES AND FORECASTS

3.

STRATEGIC FINANCE

Ensure your board of directors take full ownership of the business’s financial health. They should plan and monitor financial pace and progress and assess all potential risks Treasury policies and the implementation of cash flow forecasts are vital and must be documented. Place your Finance function at the centre of your strategic planning.


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THE ULTIMATE BUSINESS GUIDE TO BREXIT

BREXIT ROADMAP Our Brexit timeline is essential for business owners preparing for the likely changes to the UK EU system following Brexit. We set out the key dates and potential events over the next few years and explain the significance for your organisation. DATES

EVENT

MORE INFORMATION

23 Jan2013

EU Referendum

The decision was taken by the then Prime Minister David Cameron to hold a public referendum on whether or not the UK should remain part of the EU.

23 Jun 2016

Cameron Resigns as PM

A 51.9% majority over Brexit is reached at the EU referendum. This was followed by Cameron, who was supportive of remaining in the EU, to resign as prime minister.

13 Jul 2016

Theresa May becomes PM

Theresa May, now leader of the Conservative Party and becomes Prime Minister and forms a new government.

29 Mar 2017

Article 50 triggered

Article 50 is triggered, which starts the 2 year clock and process to leave the EU.

08 Jun 2017

General Election called

After triggering a surprise general election, Theresa May loses her majority and forms a coalition with Northern Ireland’s Democratic Unionist Party (DUP), allowing her to form a majority and remain in power.

26 Jun 2017

EU UK negotiations

Negotiations between the EU and the UK formally start.

15 Dec 2017

Brexit Divorce Bill

An agreement is in place for the ‘Brexit divorce bill’, although final numbers are not likely to be concluded until the 11th hour in October 2018

19 Mar 2018

Transition phase dates set

Negotiations between the EU and the UK continue, but make successful strides in terms of Brexit transition phase dates including EU citizen status and fishing policies.

12 Jul 2018

Brexit Secretary Resigns

David Davis, Brexit secretary and Boris Johnson, foreign secretary departed government.

16 Jul 2018

Customs Union Vote

The Customs union vote was debated by MPs at the House of Commons, looking at an amendment to the UK trade bill and the Labour party calling for the UK to stay in the customs union.

10 Sep 2018

EU Migration Report

The deadline for a report on EU migration to the UK is required to the government, drawn up by the UK Migration Advisory Council.

18 Oct 2018

October Summit

The October summit takes place. This is the likely final decision on the UK divorce from the EU.

13 Dec 2018

EU Council

The final meeting of the European Council takes place here – where final sign off for UK – EU to have a signed Article 50 divorce deal, just three months before the UK’s final departure date.

16 Jan 2019

Vote of Confidence

The Prime Minister wins a vote of confidence in the Government.

21 Jan 2019

Plan B

Theresa May presents the government’s ‘Plan B’ Brexit deal.

29 Jan 2019

Amendments to Plan B

MPs debate the Prime Minister’s ‘Plan B’ deal, which is then approved following two amendments.

29 Mar 2019

UK Leaves the EU

Brexit Day – Either a seamless transition or a cliff edged Brexit – expect many political declarations and turbulent events on this date!


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THE ULTIMATE BUSINESS GUIDE TO BREXIT

Financial Planning and Business Strategy around Brexit

SIMON WILLMETT Director, Nucleus Commercial Finance In his role as Financial Director at Nucleus, as well as the day-to-day finances of the business, Simon is responsible for devising and executing the business strategy, financial planning and modelling. He specialises in providing insights in to building robust business strategies, stress-testing your business finances and scenario planning. Simon has nearly 20 years experience in accounting, with 10 years at Deloitte before he moved over to work in SME financial management.


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THE ULTIMATE BUSINESS GUIDE TO BREXIT SIMON WILLMETT Nucleus Commercial Finance

BUSINESS COSTS AND BREXIT What business costs could increase as a result of Brexit?

Have you started to make plans for your business in preparation for Brexit?

One thing that is at least true of Brexit is that we know about it in advance. This gives businesses the benefit of being able to prepare for it to some extent. Our results show that only around half of businesses have begun preparation but something that all businesses should be doing is forecasting and predicting the potential cost increases that Brexit may inflict on their business. By planning in advance, you can spot cash flow gaps before they happen and employ the correct use of external finance or source expertise, well in advance.

OPERATING COSTS

SUPPLY CHAIN COSTS

HR/STAFF COSTS

RAW MATERIALS

TRAVEL COSTS

LEGAL COSTS

OVERSEAS TRADE COSTS

Yes 44%

No 56%

Top tips for managing increased costs:

1.

FORECAST

2.

PLAN AND MAINTAIN

From an FD perspective it is about forecasting those costs as best you can. Have some contingency in place and ability to stress test it where necessary. Continually keep your forecast up-todate and refer to it. A lot of us can be guilty of preparing a wonderful budget / forecast and then forgetting it for the next 9-12 months.

3.

BE PRO-ACTIVE

4.

BE IN THE KNOW

5.

COMMUNICATE

If there are issues, cash short falls, then it is always better to seek professional assistance early rather than later. Easier to get funding, and better quality funding, the earlier you do it. Obtain as much information as possible so that you are as informed as you can be. Speak with your ExCo, your accountants and professional advisors. Equally, share this information with your key suppliers (how will it affect them), your producers. Do not assume that they know your plans and particularly if they are based internationally, Brexit may not be a major concern for them, or even on their radar.


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THE ULTIMATE BUSINESS GUIDE TO BREXIT SIMON WILLMETT Nucleus Commercial Finance

DEALING WITH THE BREXIT TURBULENCE Financial forecasting and scenario planning With Brexit turbulence as strong as ever and any semblance of securing a deal seemingly impossible at the moment, businesses must focus on safeguarding themselves rather than wait idly for a decision that may never come. Paying particular attention to the economic landscape is vital. Ignorance about the larger UK economy, (as opposed to your individual business, industry or ecosystem) could leave your business exposed. The enemy of the financial markets is uncertainty and that means that at the moment the pound is volatile. What happens post 29th March is fairly dependent on whether or not the UK manages to establish a deal. If certainty can be provided there is no reason why the pound and the economy cannot bounce back but without it, the situation could be a little stickier. Do not bury your head in the sand. Stay

informed and up to date with the situation so that you can safeguard your business as best you can to weather the Brexit storm. Take steps to ensure that you can navigate Brexit as best you can:

Forecasting and scenario planning From a financial perspective, planning and forecasting can be the difference between having a thriving business or a struggling one. What is unique about the Brexit situation is that you needed to prepare for multiple different scenarios, many of which are still on the table, still with no clear indication which will win out in the end. The first thing to remember is that it is okay to change the plan. Just make sure you have one to begin with and also stress-test your business in different potential scenarios. How will sales be impacted? Are you able to pass on any increased import/export tariffs to your clients with a by increasing prices, as some large companies have already done, or can you afford to absorb these


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increased administrative costs yourself? What would happen to your cash flow in situation A, B, C etc. If you can, allow for some contingency money which will offer you flexibility and breathing time if a particular outcome is not what you expected.

Plan and maintain As the Brexit situation is ever-evolving, so should your forecasts and business plans be. It is easy to spend a long time putting together a detailed 12 month plan and then just file it away somewhere to gather virtual cobwebs. In fact, any plan should be a living breathing document – referred to daily and in the current climate, which is so hard to predict, allow a certain amount of flexibility too.

Forecasting has never been an exact science but usually with the previous year’s seasonal trends and behaviours to you can make intelligent predictions and establish your forecast. In this uniquely unprecedented scenario it becomes more challenging. You could prepare secondary plans which are effectively ‘waiting in the wings’ in case of different scenarios or you could allow a contingency within your forecast which you can fall back on until everything settles down.

Be pro-active If through the process of planning and forecasting you identify issues,

cash shortfalls or potential stresses then it is always going to be better to seek professional guidance as soon as possible, rather than reactively, once it’s too late. Consulting with an accountant or other qualified professional who can advise you on all the options and guide you is worth its weight in gold. Similarly, if you feel you may need to employ use of external finance to realise growth ambitions or keep your business going, for whatever reason, you should find it sooner rather than later. The lenders will be far more likely to be supportive if you seek funding before your situation escalates. Employing smart use of external finance as part of your business strategy, is a positive thing. Looking for finance to save you at the 11th hour can smack of desperation and you will find It harder, more stressful and more expensive to get the support you need.

Be in the know Being in the know applies both externally and internally. Externally, you need to stay up to date with the news and current Brexit progress. Of course everyone is sick to death of hearing the word ‘Brexit’ and all the conflicting information, but you need to check in with it fairly regularly and stay up to date with the parts that affect you and your business. Internally, communication amongst your team is vital. Senior Management all need to be on the same page. Once you have created your plans and assessed the potential impact on the business of different scenarios, host an offsite day to get your ExCo on side and fully briefed. If you import or export to Europe, the impact of Brexit may be heightened (whether positive or negative) but it is


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unlikely that any business will be totally unaffected. You will need to keep your team united and working towards a common goal. Whilst fear-mongering helps nothing, if it’s justified, prepare your staff for potential turbulence and highlight that the business could be facing a period of transition.

Communication beyond Other than preparation, if there was one key thing to take away from this article it would be communication. Communication becomes particularly important when entering an unknown and Brexit is certainly. Once you have a plan or have made decisions about your approach, these not only need to be communicated internally but externally too. A lack of knowledge often breeds fear or rash decisions due to misunderstandings. Do not assume suppliers and customers know your plans or how Brexit will affect you and them. In particular if they are based internationally Brexit might not be on their radar or even be a big concern for them.

Good business is built on good relationships, but these may not be enough on their own. If you have long-standing business contacts that you want to preserve, be as open as you can and make sure trust is maintained.

Key questions to ask: • Can you realistically pass any increased costs and tariffs on to your customers?– if so, how much can be passed on and how much must you absorb • Are your senior team fully prepared for any changes in strategy that may be necessitated by Brexit? • Have you sought expert advice from an external professional? The opinion really seems to be that this is Britain’s problem to solve and that trickles much further down than Westminster. In summary, despite the continued uncertainty surrounding Brexit and the eventual impact it will have on your business, there are steps that can be taken now to safeguard your company as best you can with the information available now. Even if Brexit did not happen, the work put in now is a good test for other external stressors that your business may need to survive.


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Trade and Brexit

MARK ABRAMS Director, Trade Finance Global Mark heads up the trade finance offering at TFG where he focuses on bringing in alternative structured finance to international trading companies. Prior to joining TFG (tradefinanceglobal.com), Mark qualified as a lawyer with a top ranked global trade and structured commodity finance team. Mark has previously advised commodity trading firms, banks and alternative capital providers on international structured trade financings, pre-export, prepayment and limited recourse structures - notably in the oil, soft commodities and metals sectors. This has included mining finance projects, structured letter of credit facilities, receivables discounting and forfaiting agreements.


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THE ULTIMATE BUSINESS GUIDE TO BREXIT MARK ABRAMS Trade Finance Global

NAVIGATING CROSS-BORDER TRADE CHALLENGES AROUND BREXIT Why is trade important for SMEs?

In terms of Brexit, what are you most concerned about for your business?

For UK based small to medium sized businesses, Brexit is top of the list in terms of the key risks and challenges. The challenging geopolitical environment is especially causing concern for businesses that trade internationally. SMEs need the right practical, promotional and financial support to grow sustainably by exporting.

Currency risk

International trade is one of the leading engines of global economic growth. However, it is dependent on the movement of both goods and capital. The burden of capital lending restrictions and Basel III is now limiting some lenders ability to provide finance to SMEs. That being said, there are a number of risk mitigation strategies which businesses can employ, whether it’s diversification of suppliers, reviewing positions with external financiers or looking at warehousing costs.

Key Areas for Trading Companies to Watch:

CUSTOMS AND TARIFFS

LEGAL COSTS

OVERSEAS TRADE

COST OF FINANCE

(Choose your top 3)

28%

HR and employee immigration

12%

Managing cashflow

24%

Loss of customers or business Overseas trade

32%

Increased costs Compliance

68%

40% 28%

What are the top concerns for businesses around Brexit? 66% of business owners at the Brexit Business Guide session expressed a loss of business as being their main concern around Brexit

1.

SUPPLY CHAINS Disruption to current supply chains, and routes of transport for goods may change, which may result in increased unit costs for a business

2.

INSURANCE

3.

DOCUMENTATION

4.

COSTS

INSURANCE

If insurance standards in certain jurisdictions within Europe are to be changed, it could result in the loss of ability to trade and a reduction in trust relating to transactions If regulations change in regard to the legality of trading, then the formal documentation may also be different. Standard methods such as Letters of Credit may not be recognised in some locations Many firms believe that their costs are going to rise to a point that damages their trade. If firms are forced to pass on the extra costs, consumers may not accept them and go elsewhere


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THE ULTIMATE BUSINESS GUIDE TO BREXIT MARK ABRAMS Trade Finance Global

BREXIT AND TRADE Navigating cross-border trade challenges around Brexit In today’s turbulent geopolitical climate, there are many challenges facing businesses of all sizes. With Brexit looming, we need to continuously assess the opportunities and risk mitigation strategies that UK SMEs can take over the coming months. Mark Abrams, Partner at Trade Finance Global, spoke about some of the larger challenges which trading firms face in the run up to Brexit, and what areas companies should start thinking about. Large firms, operating out of multiple jurisdictions, have access to a wide network of buyers and suppliers. This diversified supply chain means that, should we end up in a no deal Brexit scenario, these businesses may see a slight impact on their P&L, but not of the scale and breadth of issues it could cause for smaller SME’s.

Firms have started stockpiling product and components, while preparing for transit delays in relation to imported products. On the supply side, firms have started stockpiling product and components, while preparing for transit delays in relation to imported products. We have seen this in the pharma space, with many UK based labs sitting on specialist stock, which is often manufactured or imported from Europe. This also ties into the threat of heightened tariffs and potential complications around customs clearance. Analysing the operating methods of a company is critical to mitigate such risks. Supply Chains are being rationalised and closely monitored. Just recently, Jaguar Land Rover announced that it was cutting staffing levels in parts of the UK to a three-day work week.


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When it comes to the cost of doing business, it is often not a straightforward answer. The complexity of supply chains, the number of moving parts, the changing regulatory and political landscape - all of these factors need to be evaluated. Ask yourself, where does your business warehouse product? Your financing facilities and legal documentation could change as a result of Brexit, so it’s important to hedge out any potential exposure, by understanding possible eventualities. Documentation is a real concern. International trade and the way in which it is communicated has always been a focus of trading bodies such as the ICC who assist with the promotion of responsible free trade and provide guidelines on the rules and standards that govern international business. The introduction of the ICC incoterms, as the agreed set of rules which global firms should adhere to, has provided much needed clarity and encouraged trade. The key point here is that businesses should be prepared for Brexit. Some 44% of the attendees at the Brexit Business Guide event have already started business planning in preparation of Brexit.

What about access to finance? With more alternative financiers, and thus liquidity, in the market than ever before, there has been pressure on high street banks and a changes in the types of lending available to SMEs. Many larger banks have announced branch closures in the past 12 months.

If UK access to the single market is lost, then the resulting constraints on free movement of capital and labour will have a heavy impact on import and export firms. Immigration and passporting If UK access to the single market is lost, then the resulting constraints on free movement of capital and labour will have a heavy impact on import and export firms. With a reduction in the availability of highly skilled labour and lower cost immigrants, output and productivity will be affected.

The silver lining of a trade war? When focusing on the trade war between the US and China, there is an interesting potential area of benefit for the UK. President Trump has made involvement in US Mergers and Acquisitions more difficult for Chinese companies and has also reduced inward foreign investment. This Chinese are looking to increase overseas financing, and these changes could essentially leave a gap for a beneficiary.


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APPENDIX GOVERNMENT CONTENT gov.uk/government/publications/partnership-pack-preparing-for-a-no-deal-eu-exit gov.uk/government/brexit

OTHER CONTENT cbi.org.uk/business-issues/brexit-and-eu-negotiations/ britishchambers.org.uk/page/join-a-chamber bbc.co.uk/news/topics/cwlw3xz0lvvt/brexit


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Nucleus Commercial Finance was founded to provide UK SMEs with alternative funding options. No bureaucracy, no rigidity: we support growing companies with the finance they need to flourish. Our specialists have substantial banking and investment experience. As such, we understand how to structure long-term funding that helps businesses grow. At Nucleus, we combine the stability of bank finance with the flexibility and speed of fintech platforms. We’re completely transparent, won’t mask hidden costs with low-interest rates, and we aren’t going to penalise the businesses we support with unforeseen charges. nucleuscommercialfinance.com

Trade Finance Global was established to help provide trade information and help signpost businesses to find the most appropriate form of funding. We have an established network of non-bank and bank funders, partners and support structures which can assist you in structuring a successful trade deal. tradefinanceglobal.com

Profile for Trade Finance Global

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