Business After Brexit: What Small Businesses Can Expect
What can you expect for your business after Brexit? We’re here with an update on factors you should begin thinking about in advance.
When Brexit, the UK’s controversial withdrawal from the European Union, was voted upon in 2016, the business community especially was concerned with the ramifications the separation could stand to have on business interests in the United Kingdom and in Europe, especially on small businesses. There are an estimated 5.7 small and medium sized businesses active in the United Kingdom today, and they account for around sixty percent of employment in the private sector. Small businesses, while often looked over in the media and public consciousness in favor of big brands and names, are actually essential to the economy of a number of countries, and especially the UK. So as a small business after Brexit, what can you expect in the years to come?
A study done by researchers at the Universities of Saint Andrews and Essex revealed that concern over Brexit seems concentrated by two leading factors: geography and business-orientation. Businesses oriented towards innovation and export are the most concerned about the potential negative effects of Brexit on their business, and this seems intuitive. Export-oriented businesses are going to take a tax hit, and the very spirit of Brexit and its relatively isolationist logic is inherently threatening to innovation businesses, which thrive on connectivity and networked interactions. The areas where we find the most pessimism towards the split are also relatively predictable — Scotland and North Ireland, two territories that voted overwhelmingly for remaining with the European Union.
Overall, businesses that operate on a predominantly domestic front are unlikely to be too rattled by the Brexit shake-up. Keeping in mind changes in VAT and the EIF, however, it will be important to keep in mind for the next few years of your business after Brexit. For example, if you’re planning or launching your startup in the UK at present, you’ll need to accept that financing is slightly less available to your company than it was a few years ago, at least with the bowing-out of the EIF. It’ll also be a wise idea to calculate exactly what costs you’ll incur by doing business — especially importing or exporting — to and from continental Europe. How can you keep your costs low by sticking with domestic suppliers? Business after Brexit looks poised to become more independent than before.
Updates on the Process
While the exit process will take a few years and began a year ago, we have more information now about the forecast for small and medium business after Brexit than we did last year.
Before Brexit, Value Added Tax (VAT) was distributed along the supply chain and did not fall directly upon the small business itself; that’s about to change. Goods from continental Europe will be subject to pay VAT up-front on European imports, which will increase the cost of doing business for small and medium businesses between continental Europe and the United Kingdom. This means that small and medium sized businesses, and even larger ones eventually, will have good reason to start investigating domestic suppliers who will be able to fulfill their business needs without the added tax.
The European Investment Fund (EIF) undertaken in 1994 by the European Union is a valuable financing body that works through banks in order to help finance small businesses in Europe. Since its conception, the EIF has pooled together billions of dollars dedicated to helping the development of small businesses, and UK businesses themselves profited from an estimated 2 billion of this development money. After Brexit, UK businesses will no longer have access to this fund, even through their banks. When fewer companies are formed, the government usually ends up making less money off taxes. When this happens, deficits can increase. Only time will tell what being cut off from the EIF will do to UK’s economy and business after Brexit. And if you had your heart set on launching your startup in the UK and Brexit seems to have thrown a wrench into your plan, don’t worry, the government is still committed to fostering business development on UK soil. You can go here, for example, to check out some of the government-backed startup loan options available.
Overall, it seems safe to assume that UK business after Brexit is going to need to deal with a reduction in access to foreign financing, a reduction in investment in the UK economic space (especially foreign investment), and decreased levels of growth and innovation. But! We aren’t here to discourage you, and you certainly shouldn’t let politics get in the way of your business venture. Be sure to check out our section on Starting Up in the United Kingdom to help you get started with your UK business venture. And don’t forget, no matter what the economic or political situation in your country, the key to starting a successful business is always showing up with a fool-proof business plan, one that outlines your company’s raison d’être, your forecasts, research, projected risks and contingencies, and more. Check out our free business plan templates for download on our website to help you get the ball rolling. You’ll just need to find alternative financing and capital outlets, and be more mindful of the added expenses that doing business internationally might incur.
It’s important to keep in mind that healthy, growing businesses shouldn’t have too much difficulty handling the added VAT, and won’t need to concern themselves with the lack of access to the EIF; if this is your case, then more power to you! Plenty of nations do business together and swallow the VAT, it’ll just take some time for Europe and the UK to adjust to what can only be termed as an amicable divorce. Business after Brexit will still exist in a cosmopolitan and inter-connected global space, it just means that certain small adjustments will need to be made in already-existing businesses, and new startups will simply grow up adjusting to a new economic regime. We hope that this has provided some added information about what you can expect for your small business after Brexit and how you can be as prepared as possible. We love hearing from our readers, so don’t hesitate to leave any questions or concerns in the comments section.