Are you prepared for a Brexit storm?

A day doesn’t go past now without a news item about Brexit and with major talks scheduled for December it’s all very tense. The magnitude of work required to leave the EU seems to be hitting home. Talking to colleagues there is a feeling that it will work itself out. It has to, doesn’t it?

There are likely to be many more twists and turns and a deal will probably be done, but on what terms? As a business owner this uncertain future doesn’t help when you are trying to plan, especially when it’s combined with a fragile UK economy and unstable political environment.

There has been a lot of talk about the tariffs that may come into play if there is a hard Brexit, aka “no deal”. Tariffs are a protectionist measure countries adopt to enhance the competitiveness of industries in their economies. They work by applying what is effectively a mark up on goods entering the country thus making them more expensive compared to home made products.

Under World Trade Organisation rules, which the UK has signed up to, tariffs are not allowed to put at a disadvantage or advantage one country against another. So for example the UK government could not hit back at France for forcing a hard Brexit by applying a 70% tariff on cheese. Instead the tariff that applies to the “most favoured nation” i.e. the lowest must apply to all others. This is known as the MFN rate.

With the MFN weighted average of the EU in 2013 being around 2.3% you might argue that the benefit of being in the single market was reducing. But that’s not the whole story as the MFN tariff varies quite a lot on different products. On cars for example it’s around 10%. If the UK matched this rate on Brexit then cars imported from Europe would cost around 10% more on 1 April than 31 March 2019.

One other issue we need to be aware of is the reverse. Exporters whose goods are currently flowing into Europe tariff free may see the effective price of their goods rise if tariffs are added and therefore their competitiveness reduce against their EU competitors.

I guess that the silver lining is that it won’t come to this BUT what happens if it does? What impact will it have on your profits? How prepared are you?

As I was writing this, this Facebook advert popped up on my feed re-enforcing my view that we need to start planning now.

However, whilst planning might be difficult one thing you can do in preparation is research. Many of my clients have supply chains that stretch into Europe. Some buy directly from companies in France, Spain and Italy et al. others from companies in the UK who buy from Europe. Do you know where the goods you buy come from and what would you need to do if there were a 2.5%, 5.0% or 10% increase in prices because of the application of a tariff? Can you source goods from UK producers? Does your business model need to change? These are all questions I think you should have the answers to just in case.


Impact of the UK Election result on Making Tax Digital, the economy and Brexit.

Impact of the UK Election result on Making Tax Digital, the economy and Brexit.

When speaking to people eight weeks ago it seemed almost impossible that anything other than a significant Conservative win would be the result of the General Election. But I guess Harold Wilson was right when he said “A week’s a long time in politics” and now there is a hung parliament what does that mean for micro, small and medium sized business owners?

Making Tax Digital

I think this is going to be something left in the “in tray” of, Chancellor, Philip Hammond. It’s almost certain to be introduced at some point but I think it’s likely to be postponed whilst other more pressing matters are covered off. Business owners should still be planning for this as I don’t think the postponement will be for long, with the best planning focusing on introducing digital accounting systems. Systems like XERO will help deal with the obligations of Making Tax Digital but also give the opportunity to build efficiencies into systems and procedures.

Economic uncertainty

Brexit and a weak supply and confidence agreement with the DUP mean that further shocks in the economy are likely. How these issues effect the pound, consumer confidence, inflation and growth in the economy is unknown but with a “weak and wobbly government there is sure to be some uncertainty. Whilst it’s a cliche that business hates uncertainty the wheels in the economy will continue to turn. As business owners we need to remain prepared to act if “shocks” effect our business. I wouldn’t advocate preparing 18 month plus plans but keeping a focus on the now and immediate future, watching key measures of performance for your business and monitoring cash.

Brexit

Key questions around Brexit remain unanswered and the muddled political picture is not likely to help negotiations. I think it unlikely that the DUP effect will significantly influence the stance on the key issues however, I do think that there may be a softening in approach to try and align it with public opinion. I don’t think there is much we can do to protect against the negative effects of Brexit because we don’t know there will be any yet. For me focus should be on business as normal with close monitoring of performance and cash.

So whilst the result of the election might seem a disaster I’d not focus on the macro uk view. Instead I’d be focusing on good business disciplines; monitoring performance, controlling cash flows and keeping abreast of changes in the external environment that might impact on the business.

Richard Hallsworth Lincoln Accountant and Business Adviser LinkedIn


What will happen to Businesses in Lincoln after the 2017 General Election

how the general election 2017 will affect business in lincoln

If the opinion polls are to be believed, which might be a bit of a stretch given their recent way-off-the-mark predictions (Paddy Ashdown’s promise to eat his hat after the close of polling at the last General Election springs to mind), then the gap between the two main political parties is now very small. This leads us to think more deeply about what tax planning might be required given the colour of the party in charge on 9th June.

If the Tory blue flag flies above Downing Street, there could be increases in tax at some point, as their manifesto no longer includes a promise not to raise taxes. Theresa May, and more particularly Philip Hammond (has anyone seen him recently?), felt the previous non-hike promise was too much of a constraint on policy–makers. No further details have been given over where tax rises might hit.

If, on the other hand, the red flag is flying, then we know that there will be tax rises at both a personal level and on corporate profits, to pay for Labour’s spending commitments. Personal taxes will rise for those earning more than £80,000pa, and the recent increases in Inheritance Tax thresholds will be reversed. Companies will see an increase in the rate of Corporation Tax on their profits from the current rate of 19% to 26%.

There is also uncertainty over the HMRC flagship policy of Making Tax Digital (MTD). Many of the proposals for MTD were removed from the last Finance Act, which was truncated when the snap Election was called. The change to the amount of tax-free dividends from £5,000pa to £2,000pa were also a victim of this action. It remains to be seen if either of these will be re-introduced in what is sure to be a second Finance Bill/Act of 2017 following the General Election.

Whichever party takes the reins of power, it will be necessary for taxpayers to make sure they keep an eye on their own personal circumstances, and how any tax changes might impact on them. It will no doubt keep us on our toes, and lead to a lot more tax changes, regardless of which party is in charge.

how will the 2017 general election affect business in lincoln


Considering Business Acquisition for Business Growth

Want to grow your business fast? Considered a business acquisition?

Most business owners see the benefit in adopting a growth strategy. Sometimes though market forces make organic growth difficult and expensive. A much faster method of achieving growth targets is to bolt on other businesses through an acquisition.

You may choose a competitor whose sales you can absorb and strip out overheads. Your target might be complementary in that it offers something of use to your customers or vertically/ horizontally in your supply chain. Irrespective of the type for most a business acquisition offers the hope of growth. Many owner managers however, find the thought of an acquisition not appealing; too many problems, too much risk, too difficult to fund and too expensive.

At Nicholsons we partner with clients looking to acquire to help guide them through the purchase process every step of the way.

One piece of advice I often give is that deals don’t need to be Richard Gere in Pretty Woman style massive deals. I’ve recently worked on two acquisitions both with values of less than £25,000 but deals with values up to £100,000 can still generate good value.

Both of these recent deals offered integration benefits; sales and profit growth, customer cross selling opportunities, channel integration, economies of scale and a less than 3 year payback.

Smaller deals like this are often easier to complete. There are often smaller ego’s amongst the sellers (& their advisors) and whilst Due Diligence other pre purchase checks and legal documentation are still needed it can often be really focused on key areas which helps keep costs proportional to the deal size.

Sometimes buyer burnout in the deal process means that integration and day one planning is not effective. Smaller deals don’t drag on and there is plenty of energy left for integration planning. This is a real benefit of completing small deals because you can integrate them easily whilst keeping on top of the day job. Post purchase integration is where excellent business owners generate value and make acquisitions work so having more time on this area is a benefit.

So my advice would be. Don’t discount acquisitions as a means of achieving growth, but think smaller.