Fears rise among mid-market businesses about no deal Brexit

Middle market business are becoming increasingly alarmed about the impact of a no deal Brexit according to a new survey by leading audit, tax and consulting firm RSM.

Over a third (35 per cent) of middle market businesses surveyed by YouGov indicated that a no deal Brexit would be either harmful or catastrophic to their business, a 25 per cent rise over the previous quarter.

However, roughly the same proportion (36 per cent) said that a no deal outcome would be favourable or advantageous, although this was on a par with the figure recorded in the previous quarter.

Overall, business sentiment about the impact of Brexit on their performance over the next two years dropped to its lowest quarterly level since RSM started the survey in Q3 of 2017, registering just 90 on the RSM's Brexit Monitor index. The index measures sentiment between a range of 0-200, where any score above 100 is considered positive, any score below 100 is negative. 

Businesses also had a similarly negative view of the two-year impact of Brexit on the UK economy, with the index registering its lowest ever score of 91.

However, viewed over a longer five-year horizon, middle market businesses expressed a greater degree of optimism about the impact on their company's performance with average sentiment just straying into positive territory with a score of 103.

When asked to rank their top Brexit concerns, 38 per cent cited concerns around the stability of their workforce, 34 per cent expressed worries around future trading arrangements, tariffs and import/export costs while 21 per cent said they were concerned about the knock-on effect on consumer confidence.

When asked about actions taken to prepare for a no deal Brexit, the most common actions taken included increasing prices, adjusting supply chains and setting aside contingency funds. However, firms reported taking fewer actions to prepare than in the previous quarter. 

Simon Hart, RSM's Brexit lead partner said: ‘As the prospect of a no deal Brexit looms larger, the reality of the challenges facing middle market businesses is raising blood pressures in some UK Board rooms – at least in the short term. The longer term outlook still remains broadly positive. The middle market is seemingly less concerned about the economic warnings suggested by some commentators and instead more focussed on opportunities that might arise.

'Interestingly, the closer we potentially get to Brexit, business leaders appear to be taking fewer steps to prepare. A sort of paralysis seems to have set in as everyone just waits to see what actually happens.

'I think Boards should use the time in March to focus on some key scenario planning and ensure they are either ready for material eventualities or have identified the key risks and have taken a considered view on whether they do something or not based on that work.'

To prepare for Brexit, RSM is advising businesses to cover five key areas:

1. Regulation and compliance
Maintaining compliance with changing regulatory frameworks will be crucial to enabling a business to continue to operate and trade across the EU and non-EU countries as they do now. For example businesses will also need to consider how Brexit might impact their ability to access some tax reliefs and whether insurance provisions will still be appropriate.

2. Financial planning and management
Forecasting the impact of decisions and price shock uncertainty will be crucial to maintaining business continuity. Equally important will be the ability to access finance to fund suitable working capital requirements.

3. Trade
Businesses need to consider the potential impact of increased customs duties, greater regulation causing delays to the movement of goods and services and the effects on cash-flow. 

4. People and talent management
Changes to UK immigration policy will have a profound effect and businesses should be thinking about how they will continue to recruit and retain the right people to maintain business continuity and make the most of Brexit opportunities.

5. Business management
Avoiding disruption to core operations and maintaining business continuity will require careful planning and may involve restructuring the business or acquiring additional entities in different jurisdictions. This may also mean outsourcing key areas to increase efficiency and enable a business to focus resources elsewhere.

For further information, visit our Brexit pages.

Brexit - into 2021

There is no doubt that Brexit will have far-reaching impacts, with reverberations felt across every sector. Many in the business world will understandably be concerned.

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