Tag Archives | Brexit

The Impact of Brexit

Two months ago, Great Britain voted to leave the European Union (EU).  One of the most frequent questions asked was “What does this mean for me and my company?”  While Brexit hasn’t actually happened quite yet, the past two months has given us time to see the impact of Brexit on local economies and world economies as well as assess all the changes that have occurred since the vote.

brexit-referendum-uk-1468255112FBbBrexit

“Brexit” is the term used as a nickname to Great Britain’s exit from the EU. Some speculate that the entire process of Brexiting will take up to 10 years and will need 10,000 people in order to make it happen (The Guardian).

Should you still care about Brexit? Brexit is just an example of an external factor that can have a huge impact on your company. By completing an external analysis, for example, you’ll be better able to assess all likely outcomes and react accordingly.

Change Happens – Impact of Brexit

It’s simplistic to expect that dramatic changes will occur in a single day, but we can expect things to change in 2 months time. And it’s true that lot of adjustments have been made since the referendum.

David Cameron resigned from his position after the vote came in, vacating the leadership role he filled for 6 years. This resignation is similar to presidential elections or any other change in office due to the different agendas, perspectives, and goals.

The new Prime Minister, Theresa May has already created 2 entirely new governmental departments (or ministries): the Department for Exiting the European Union and the Department for International Trade. Although these ministries are still sorting out the details, we can assume that immigration of labor and trade will be impacted (positively or negatively).

As a financial leader, you must act as the wingman to your CEO and look at the horizon for things like this. What do you see that could potentially help or hinder your company?

If you need help completing an External Analysis to avoid the impact of harmful changes (or take advantage of opportunities), click here to access your free guide.

Where Does Everything Stand Now?

During any time of uncertainty, businesses are bound to be cautious (particularly in the Business-to-Consumer arena). As an entrepreneur, I consistently try to stay ahead of the curve in knowing what’s about to happen. An easy tool to use is called PEST Analysis; this tool allows you to take a broad scope of political, economic, socio-cultural, and technological factors that influence your company, customers, or vendors.

Politically

New Prime Minister Theresa May has some major hurdles to overcome due to the Brexit decision. As the first person to actually organize Britain’s exit from the EU, all bets are on the table as to how she is going to react. Earlier, we talked about how May created 2 new governmental departments. Think about what this is going to impact.

TaxesSomeone has to pay for this to happen, and it’s probably going to be the taxpayers – citizens and businesses.

Labor: People are necessary for operations to run smoothly.

Trade: Restriction on trade might hinder companies from conducting business in or with Great Britain.

impact of brexitEconomically

BBC reported that unlike expectations leading up to the referendum vote, retail sales haven’t seen a major downturn. In August, Great Britain experienced their second upturn in retail sales since Brexit. Moreover, credit card sales were higher in July than the previous 6 months.

Consumers and businesses alike are remaining cautious and conservative in their spending habits, but they are continuing to spend.

Interest rates and the value of currency decreased dramatically, which has a major impact on businesses (particularly with international business).

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With the value of the pound having been decreased since Brexit, manufacturers are seeing an increased cost of importing. This could be due to interest, trade regulations, and tax laws.

Socio-culturally

The impact of Brexit hasn’t given rise to many socio-cultural changes in the past 2 months other than the obvious – change in consumer purchasing behavior.

Technologically

Brexit may not have a direct impact of advancement or regulatory changes for technology, but the impact of Brexit may adjust the landscape of how companies optimize technology.

Companies may find that telecommuting and telecommunication are solutions to avoid predicted labor restrictions. Another option would be to adjust manufacturing processes to reduce the weight of product for shipping.

How Can I Prepare for These Types of Environmental Factors?

It’s important to understand that external environmental factors are going to impact business confidence, causing uncertainty in businesses and consumers. Similar to Brexit, presidential elections and other events can cause businesses to freeze up.

But how do you know if your company is going to be impacted by external events if you haven’t given it thought?  Take a look at your consumers.  Where do you even start to prepare for these types of environmental factors?

impact of brexitDo Your Research

Nowadays, people are tied to their smart phones, tablets, and computers due to the integration of technology into culture, the workplace, and daily life. Information is readily available, so don’t get left behind like the luddites. Your friend Google is a great resource that you can use to do your research.

Doing research of environmental factors that have the potential to impact your company could save you a lot of time or money in the future.

Perform a SWOT Analysis

Performing a SWOT analysis is an important step in preparing for uncertainty. It’s an analysis of your company’s strengths, weaknesses, opportunities, and threats.

Create an External Analysis

An external analysis looks at the opportunities and strengths of a company. This is necessary in order to know what could impact you.

This might be a good time to revisit the notion of the economic dam

 It’s only when the tide goes out that you learn who has been swimming naked. – Warren Buffett

Your external analysis will bring to light factors that may hit you immediately or collide with your company later down the road. By estimating where you are in the river in relation to the dam, you’ll be able to combat uncertainty.

Create Action Plans

Write an action plan or a list of action items that need to be completed upon the occurrence of a particular external event.  This is one of the most important things in order to prepare for any scenario.

The more aware you are of what could impact your company, the better you are able to successfully pull through any situation.

impact of brexit

This emergence of the new CFO is changing the landscape of tomorrow’s financial leader. Financial leadership is no longer simply managing the finances, but rather steering the ship through smooth and choppy waters.

Act Early

One of the biggest mistakes companies make in troubled times is not acting early. Start today and download your free External Analysis whitepaper that guides you through overcoming obstacles and preparing how your company is going to react to external factors.

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Brexit: Why should you care?

Britain’s exit from the EU, commonly nicknamed Brexit, is one of the most discussed issues over the past week; particularly when it comes to the financial implications of Brexit and how it impacts business.

financial implications of brexitFor the first time in its existence, the European Union (EU) has lost a country from its (previously) 28-country politico-economic union.  News reports have been answering the most Googled questions: What does Brexit mean? What is the EU? Should Great Britain leave the EU?

Truth is, there are dozens of financial implications that businesses are going to have to contend with, regardless of whether they are based in the US or other countries. With Britain as the 5th largest economy in the world, it is bound to have a direct impact on the United States. The US currently has the largest economy in the world. Because it can be slightly overwhelming to understand what Brexit means for business (with the term “Brexit” returning over 213 million Google search results and counting), we’ve narrowed it down to 4 macro issues.

  1. Labor
  2. Stock
  3. Trade
  4. Regulation & Innovation

We’ve chosen to examine these issues because, regardless of whether you’re a domestic firm or a multi-national corporation, they could have either a direct or indirect impact on your company.

Labor

It’s a no-brainer that you need people (labor) to run a business. With labor, comes skill. In a recent article, The Guardian analyzed what the financial implications of Brexit are and, more specifically, how the talent pool is anticipated to shrink in the coming months or even years. The United Kingdom (UK) is experiencing a skill gap in many professional positions, such as IT. GB has failed to produce skilled workers or laborers internally. Many of the roles that require these types of skill immigrants from other countries in the EU hold. The Guardian quoted Bhuwan Kaushik, CEO of Spectromax (an IT-based company), saying:

“The impact of the Brexit will be sizeable and long term. There’s a huge IT skills gap in the UK. It’s going to take a number of years to close it. Leaving the EU at a time when the UK is in need of skills will be a huge blow to UK businesses, let alone the commercial opportunities that may be lost and could consequently stunt UK startup growth.”

So why does this matter?

Because labor matters regardless of what industry you’re in and what type of labor you require (skilled or unskilled labor). Even if you’re an American company who does not do business with other countries, it’s time to start digging a little deeper. Research the origins of your suppliers and their suppliers. Find out where your customers and their customers are located. You will likely find that somewhere in your supply chain there is someone who will be affected by Brexit and the effects will make their way to you.

Like I always say, pick your head up and take a good look at the world around you.  Just like the bullwhip analogy in a supply chain, one small ripple in the whip can cause huge results.

financial implications of brexit

Woodford Investment Management’s Report on Brexit

Immigration

With Europe experiencing the worst refugee crisis since World War II, this splintering of the EU is going to shock their already frail economy. In addition, they will continue to grow unemployment rates (The Independent). The Treaty of Lisbon (originally created in 2007) created stronger immigration policies to regulate those immigrating from “third countries” or in other words, countries outside GB. This treaty also set the procedures for countries who decide to leave the EU.

Now that GB has voted to leave the EU, they will start to transition into a third country position. This can result in the British Parliament enacting immigration policies. Travel between GB and EU may not be as easy as once before.

Stock

With any political action that causes major uncertainty and doubt in the market, it’s reasonable to expect that investors are going to react. Most investors are willing to take calculated risks, but when the final vote for Brexit tallies at 51.9% Leave vs. 48.1% Stay, the market becomes a scary place.

The day after voting day on Brexit, the pound fell to the lowest value in 3 decades. Oil dropped on Friday as well. Almost a week later, the stock market is only slightly bouncing back.

With the financial implications of Brexit panning out, London’s title as a global financial hub is being threatened as many investment banks are considering moving their headquarters to Frankfurt or Paris. This will not only impact GB’s stock market, but increase unemployment. The Financial Times has already reported that some of the major US banks (JPMorgan Chase, Goldman Sachs, and Morgan Stanley) are moving their operations to other financial hubs within the EU.

We expect Foreign Direct Investment (FDI) to decrease as the GB renegotiates its relationship with the EU. Assuming that Britain comes out with favorable terms, we expect FDI to rebound and recover the loss during this time period.

(During these uncertain times, it’s critical that the CEO has a wingman. Download our How to be a Wingman Guide to learn how to be a trusted advisor your company needs.)

Trade

Out of the many financial implications of Brexit, trade is most likely going to be the most important macro issue companies need to address.

Let’s talk a little about tariffs on imports and exports. If you have a facility in the EU and need something from GB, then you’ll now have to accommodate tariffs within your selling price. EU tariffs on exports were cut about 50% since the 1990s. Great Britain is in a good position at this time with exports.

Manufacturing

Going back to our conversation about labor, take a look at the manufacturing connections between GB and the EU. This division may result in higher manufacturing costs not only to cover new export/import tariffs, but costlier labor in GB as well.

Caterpillar, a heavy machinery company, owns a manufacturing facility in GB that employees over 9,000 employees. GB was a strategic location for them to optimize GB’s free trade relationship to the rest of the EU and their close proximity to customers in Europe, Africa, and Asia. What once was a competitive advantage is now in question. The Independent illustrates that this decision to approve Brexit has a ripple effect that will impact companies across the world.

Capital Economics contracted Woodford Investment Management to research the possible impacts that this separation of Britain from the EU would cause. They found that 63% of Great Britain’s exports are tied with EU members. While this most likely will not turn into anything more than an increase of tariffs, GB has 2 years under the Treaty of Lisbon to negotiate their withdrawal agreement. This is similar to a divorce followed by custody agreements.

Regulation & Innovation

There are no strong theories of how regulations might change. But it is important to be aware of changing regulations, especially when it comes to manufacturing facilities, imports, and exports. Expect security to strengthen in GB. As a result, it may result in new taxes or security measures to compensate.

Great Britain, as the 5th largest economy in the world, is not in a position where all of its innovation and brain power has disappeared with their split from the EU. GB may come to a stage where they will partner with the US and other countries to create a pool of innovation and ideas.

What impact does Brexit have on you? 

As everything unfolds within the next two years, look at your projections. Understand that if you have any international connections, you may be facing financial implications.  Be sure to adjust them as needed while keeping an eye on the economy.  Now more than ever, solid future planning can be the difference between weathering the storm or getting swept away.

Just like during any period of uncertainty, it’s important to recognize the opportunities presented.  Take stock of your operations. See if there are things you can do to strengthen your business while everyone else is chasing their tails.  The uncertainty caused by Brexit is similar to that we discussed in the Trump Effect Part 1 and Part 2 and many of the same strategies can be employed to deal with or take advantage of it.

Conclusion: Financial Implications of Brexit

By addressing these 4 macro issues, you’ll be better prepared to reduce the impact of the unpredictability of big events. Some of these big events include presidential elections and the 5th largest economy leaving the only fully economically-integrated union in the world.

In any event, try to narrow possible areas of influence down to 4-5; then start drawing out all the consequences.  This will not only leave you feeling more prepared for the battle. But it will also reduce the stress the people in your company may be feeling.

After being in the financial sector for over 25 years, I’ve learned that stuff happens in the world and we always find a way to move on. Times are tricky and the future is murky, but fortunately, it’s not the end of the world. As the financial leader, it should be your priority to guide your company during this process of analyzing how economic decisions like Brexit will impact your business.  Acting in this way, you become your company’s wingman.

It’s vital for you as the financial leader to be the trusted advisor your company needs. If you’re uncertain about where to start, I’d like to offer you a free white paper on How to be a Wingman.

financial implications of Brexit

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financial implications of brexit

With all the drama caused by Brexit, we wanted to give you something to laugh about! Here are a few of our favorite jokes and memes that have come out of #Brexit.

financial implications of brexit

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