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General Election results and Brexit: What next for SMEs?

After the general election resulted in a hung parliament, what does this mean for small businesses?

The General Election results have proved a rather large spanner in the works. If Brexit was cause for uncertainty among UK businesses, a Hung Parliament does nothing to build confidence. Speculation is rife and an increasing number of business leaders are calling for Brexit negotiations to be re-set with much more of a pro-business focus. SMEs will undoubtedly welcome this news. According to the Federation of Small Businesses, nine out of 10 UK SMEs currently export to the EU, and 21 per cent trade exclusively within the single market. So it’s no wonder they’ll be closely watching how negotiations unfold to help find ways to future proof their businesses.

Access to customers

The implications of Brexit on UK businesses will vary depending on the deal Theresa May is able to secure with her minority government. Before the election, it was anticipated that a stronger conservative government would emerge helping to push through a hard Brexit. In all likelihood, this would have meant the UK and EU applying tariffs on one another for imports and exports, making it harder for businesses to sell to EU customers.

A softer Brexit (which now looks more likely) would mean the UK retains certain ties to the EU, possibly through membership of the single market (as is the case with Norway). In any case, Mike Cherry, Chairman at the Federation for Small Businesses, champions a “bold and ambitious Free Trade Agreement”, which he says will help global trade to flourish.

As well as potential trade agreements, SMEs will also be looking at how exchange rates may affect business with EU customers. The Sterling took a tumble against the Euro (and US Dollar) following both Brexit and the General Election results. This is good news for EU consumers, as well as UK exporters who can either sell their goods cheaper to EU buyers or else increase their margins. But uncertainty with how the pound will perform next may put off other SMEs from branching out to international markets. Looking to the future, currency hedges could help mitigate against foreign exchange fluctuations but may only be worthwhile for SMEs with large exposure (i.e. where most customers are based outside the UK).

Although a shake up to EU trade could present additional challenges with customs checks, additional costs and regulatory burdens, on the flip side it may also encourage more SMEs to expand their customer base to emerging markets such as Brazil, Russia, India & China (BRIC).

Access to talent

It is hoped that investment in the UK workforce will be one of the positive changes brought about by Brexit. Businesses will be encouraged to actively recruit from the UK talent pool rather than seek cheap labour from abroad, with various incentives and charges imposed on businesses to support this shift. But this isn’t to say SMEs will lose the vital skills and services that their non-UK EU employees provide. For the moment, it looks as if Theresa May will uphold the rights of these individuals – at least until the UK actually leaves the EU in 2019 (perhaps even beyond) - in order to help secure a better trade deal.

Another way in which accessing talent is shifting in the current economic climate, is through a bigger focus on business collaboration. Instead of increasing headcount to fill a role or plug a knowledge gap, more and more small businesses are forming working partnerships with other SMEs in order to swap skills, knowledge or expertise. In the latest Future of Business Survey, an ongoing collaboration between Facebook, the Organisation for Economic Co-operation and (OECD) and World Bank, more than half (52%) of UK businesses questioned say they learn from each other and are confident as a result. Of businesses that collaborate with their peers to share knowledge, more than half (53%) are confident in the outlook of their business for the next six months.

Access to finance

With so many unknown variables around Brexit, a lot of SMEs will be tempted to hang back to see how things pan out. The trouble is, these businesses could find themselves on the back foot as things pick up. As Ian Stewart, Head of Europe, Commercial Banking at HSBC comments: “UK companies cannot afford to freeze their business plans and wait for uncertainty to lift. Companies are already finding new ways to break through post-Brexit stasis.”

Traditional business lending still remains the most popular method among the self-employed, start-ups and SMEs but new ways of borrowing money are starting to gain favour. Crowd-funding and Peer-to-Peer Finance are two methods of raising funds to support business growth that many SMEs are now leveraging.

In the current operating climate, an increasing number of SMEs will also be switching their focus from that of revenue targets to a cash preservation strategy. Re-scaling the cost base and accruing cash will not only help to keep debt down but also free up finance for future investment.

Uncertainty is, without doubt, the word on every business owner’s lips at the moment and speculating what this turbulent landscape really means for UK SMEs is tricky. Analysts, Economists, Business Leaders and Politicians all agree – no one really knows what’s going to happen. But SMEs - by their very nature - tend to be more agile and adaptable than their larger corporate counterparts, which means they’re more likely to navigate the effects of Brexit and ride out the storm.

Find out more about business confidence and the outlook for SMEs in the Federation of Small Businesses quarterly report.