Generally speaking business in this country have been buying cheaply and making a good margin. But where a company pays in US dollars and are dependent on imports, the referendum has impacted very quickly.
Des Smith is a ‘Business Doctor’ based in South Manchester, he is used to businesses seeking him out to talk about expansion and growth where he offers his advice.
But right now and in the wake of Brexit, if a business isn’t exporting, all he can offer is sympathy.
“I’ve had to change a lot of my guidance since the referendum. If a company was struggling or looking to increase profit’s there were a number of suggestions I would have made. Now I simply get the company to focus on increasing exports, and if they don’t trade in exports but have high imports then there will be problems to face,” says Smith.
In the last week, one of his clients has curtailed plans to build bigger premises and expand their business after currency fluctuations hit them hard.
“Generally speaking business in this country have been buying cheaply and making a good margin. But where a company pays in US dollars and are dependent on imports, the referendum has impacted very quickly. This company didn’t have the opportunity to buy in bulk in advance, and when the first wave of currency fluctuations hit they put their plans on hold but this week they have cancelled them for good," says Smith.
This picture will be reflected across the UK - a country that has for years now increasingly leant on the strong Pound to import its way to growth. The result is one of the largest current account deficits in the developed world.
Now that Sterling has faded to its lowest levels since 1990 on a trade-weighted basis, companies built on imports are understandably likely to suffer.
"Normally, we would look at price increases to cover the cost but the UK market is very competitive and if one supplier increases their costs then unfortunately the buyer will simply look elsewhere. Inflation staying low has made it even harder to increase prices,” says Smith.
As a Business Doctor, part of a national franchise, Smith see’s businesses mainly come to him looking for growth and it seems for a majority of his clients, this is still something on the cards, despite a quiet summer.
Smith thinks the referendum was possibly held at the wrong time of year, he says, “The timing was completely wrong, as soon as we get in to July and August businesses tend to slow down, summer holidays come up and they get low on staff, couple that with uncertainty in the markets and people were in shock. Add to that the press weren’t very encouraging and we just didn’t know just what was going to happen. Come September people have started to digest it and I’m certainly seeing talk of making the most of this opportunity.”
Frequenting networking meetings and client lunches, Smith has his ear to the ground of the local business networks, where word on the future of Brexit seems to be very divided.
“A lot of MD’s of companies are saying that they are not sure that we’re going to break away after all, that we are using the discussion of Brexit as leverage for other concerns” he says. “But a couple are thinking of how this is a really good opportunity to grow our exports over the next 2-3 years. They’re not too hung up on the prospect of tariffs because nobody really understands it or believes it will happen.”
However, Smith also has some clients that have made a decision not to wait for Article 50, and are already making plans to open a European office with the possibility of turning it into a Headquarters.
He says, “I have one client of mine who sells over 50% of their stock in to Europe, for them jumping ship absolutely makes sense rather than waiting for something to happen. They want to hedge their bets in-case tariffs are imposed on their sale of goods. These items are manufactured all over the world but paid for in dollars so if a tariff was imposed not only would they lose out on the exchange rate at the start of the journey but also the final sale would have repercussions.”
This comes after the October survey from Civitas which shows that the UK would be looking at around £5.2 billion in tariffs on goods being sold to the EU. However, EU exporters will also face £12.9 billion in tariffs on goods coming to the UK.
Smith’s client is now looking at settling down in Holland, a country which is working very hard to attract inward businesses thanks to the Netherlands Foreign Investment Agency (known as Invest in Holland), credited with expanding British brands such as Apollo Tyres and the Cambridge Innovation Centre.
He says, “My clients are utilising the help of Invest in Holland, it’s a government body who are extremely helpful. They advise you on locations and connect you to organisations and suggest various meetings with different stakeholders. I think it will be a good fit as after all Holland is very international, language isn’t a barrier as English is a conversational language and it’s a great place to be located with a very international population. If London loses out over Brexit, Holland might win.”
As for Smith, his consultancy has certainly changed over the past few years as the economic turn was felt across the country, now he waits to see how triggering Article 50 could change the flow again.
He adds, “The common denominator that links my clients are that they are in need of change, and Brexit won’t stop this, it will just change the way I facilitate it.”