How will Brexit affect small to medium sized businesses?

Brexit Puzzle Pieces isolated on white background. 3D render

The decision to leave the European Union in the recent referendum is mainly talked about on quite a macro scale, as most commentators concern themselves with the kind of deal which the UK can expect to get in a renegotiation with the leaders of the EU.
Likewise, a great deal of the media attention has tended to focus on the larger companies and how the Brexit vote is guiding their investment decisions.
However, the effect of the vote on small to medium sized businesses has been somewhat overlooked, the pros and cons arguably lost in the white noise currently surrounding the more political consequences of the referendum.
This is understandable, but SMEs deserve as much scrutiny as their larger, multinational counterparts, particularly as they are exposed to many of the same risks and rewards brought about by the UK’s withdrawal from one Europe’s biggest single markets.

These include:
• Changes to immigration rules.
• Access to finance.
• Changes in their supply chain
• Access to the single market and customs union (assuming they have any exports/major clients going into the EU)

The nature of the dialogue surrounding the decision to leave the EU has been quite polarised; it is either a tremendous opportunity or a terrifying cliff-edge, depending on who you listen to. In reality, the issues facing SMEs are more nuanced.

Finance

Finance to SMEs mostly comes from retail banks, and are not generally as reliant on investment from pension funds or hedge funds. In terms of access to finance, leaving the EU is not likely to have a massive impact on the day-to-day finances of SMEs.
However, the impact on the wider economy would probably be felt by SMEs. Being a member of the EU makes the UK more creditworthy; this means that business borrowers may have to pay a higher price for credit after our exit from the EU.
There is also the danger that more restrictive financial conditions will result in fewer funds and potentially higher interest rates.

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Trade and Exports

The coming renegotiations with the European Union mean that the regulatory framework of Britain’s trade and exports will change. What form these changes will take is not yet known.
For those SMEs who export heavily into the European market, several uncertainties loom large.
• Exporting will become more complex if the UK loses access to the customs union. The worst case scenario is that customs clearance procedures could become more complex, bureaucratic and expensive.
• Smaller firms need the simplest possible access to the European single market, as EU membership is important for supply chains and recruitment purposes. The nature of our future access remains unclear.
Meanwhile, the causes for optimism in a post-Brexit trading world include:
• The opportunities for new markets created by potential new trade deals with China, Canada, India and Australia.
• The drop in sterling means that it may become cheaper for SMEs to export into European markets, which some business owners hope will lead to increased sales and orders.

trade and export

Changes to Workforce

Changes to immigration laws were arguably the key reason for people voting Leave, and many are looking to the government to more tightly control immigration post-Brexit. However, this will have a complex knock-on effect for SMEs.
• A potential brain drain: SMEs in the education, technology and science sectors are particularly vulnerable to their top minds moving to the continent.
• Likewise, those businesses which rely on EU skilled migrant labour may find themselves facing recruitment problems should immigration laws become more stringent.
• However, SMEs could find themselves able to recruit from a wider talent pool, as there would arguably no longer be a bias towards EU citizens when hiring from abroad.workforce

Innovation and Investment

The changes wrought by the Brexit vote have forced many politicians and business leaders to ask questions about how the UK and invests in new skills and technologies. Since SMEs make up 99% of UK companies and 60% of all private sector employment, there are several reasons to be optimistic.

The UK government has expressed its intention to build an industrial strategy, to ensure that the UK’s local economies and infrastructure are fit for competing in a 21st-century world. Part of this industrial strategy means investing in new science and technology; this can only benefit SMEs in the long term.

However, the process of leaving the EU means that British SMEs will opt out of new innovations which will benefit their European counterparts. For example, the formation of the Digital Single Market is an innovation which would benefit UK businesses. Whether it’s tearing down unnecessary regulations, or improving access to digital goods and services, the EU will be seeking to make life easier for the SMEs in their member countries; this is an exciting innovation which the UK has, for good or ill, chosen not to participate in.

modern industrial strategy

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