In this guide, Denis Casey outlines three steps business owners should take to prepare for life after Brexit.
As Brexit negotiations proceed tensions are increasing between the EU and the UK. This is only natural with the stakes so high and the world watching. As a business owner in Ireland, it’s interesting to watch the negotiations playing out. However, there is a more serious side to the Brexit process for businesses here. There are three important steps Irish businesses should take when preparing for life after Brexit.
“Brexit is a looming crisis for many Irish businesses. Why not use it as the catalyst to begin a fundamental strategic review of the business.”
Step 1 – Prepare a simple financial model for your business
Preparing a financial model will allow you to run scenarios based on a range of variables – e.g., exchange rates, tariffs, lower sales volume, and higher costs. (Download a template here).
The model can provide valuable inputs to your risk assessment process by helping you to quantify the size of impact a risk poses to your business.
The model should be built up from the product or service costing level and include a ‘what if’ P+L tab. Costs impacted by Brexit should be detailed separately and be adjustable using multipliers. The model should also include input cells for additional costs associated with exporting or importing from the UK post-Brexit.
When the model is in place, the margin impact of various scenarios can be estimated by merely changing a few cells. It will also allow you to calculate the break-even exchange rate for your business.
A model like this is relatively simple to set up (or download) and will be an invaluable tool in helping you to prepare for Brexit.
“New regulations will evolve, the competitive landscape will change and change brings opportunities if you are looking for them.”
Step 2 – Carry out a structured risk assessment to determine the impact to your business
With a bit of thought, many of the Brexit impacts on your business can be predicted. Once a risk is identified, you can develop an action plan to deal with it.
The risk assessment should be structured under headings such as; customers, suppliers, competitors, logistics, operations, legal/contractual, funding and financial.
This list is not exhaustive, and there may be another appropriate heading for your business – e.g., human resources if you provide services in the UK.
The task of preparing the risk assessment should not be left to one person. Yes, it’s a good idea to assign overall responsibility to a senior manager, but the risk assessment process must be a team effort. Holding a brainstorming session would be a great way to start the process.
Enterprise Ireland and IBEC have prepared useful tools and guides to help you with the process. Once the risks are identified, I recommend assigning priorities to them. This can be done in several ways. For instance by using a scoring system like the following:
i) Likelihood of it happening – give each risk a rating between one and five where one is very unlikely, and five is almost certain to happen.
ii) The severity of the impact on your business – give each risk a rating between one and five where one is a minor impact, and five is a very severe impact.
iii) The lead time required to identify and put a mitigating action in place – give each risk a rating between one and five where one has a short lead-time, and five has a very long lead-time.
For instance, your business might be exposed to risk due to the introduction of import tariffs by the UK. This might be scored as follows:
i) The likelihood of this occurring is relatively high – let’s make it four.
ii) The impact on your business might not be that high if all your competitors are also based in the Eurozone – let’s make it two.
iii) The time taken to put a fix in place is quite long – let’s make it four also.
iv) This would then have an overall score of 32 (= 4 x 2 x 4).
If another risk has an overall score of 20, it would be assigned a lower priority meaning it would be actioned after the item with a score of 32.
All of the risks should be scored and ranked in this way. Some common sense also needs to be applied to the ranking system – if the priorities look wrong, then they probably are, so have another go at it.
“Businesses that follow the three steps outlined above will be well prepared for the upcoming Brexit challenges.”
Step 3 – Develop action plans
For each risk that is worthy of attention, an action plan needs to be developed. The plans should be improved through the use of brainstorming sessions and strategic planning tools. For instance, you might do a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis and look to build mitigating actions around your strengths and opportunities. The outcome of the exercise should be a set of SMART (Specific, Measurable, Achievable, Relevant and Time-Dependent) targets which in turn are converted into detailed step by step actions plans. At Casey Business Consulting we have developed a model that simplifies this process. If you would like a copy of this just send an email to firstname.lastname@example.org requesting same.
Never waste a good crisis
Finally, I’m not sure who coined the phrase ‘never waste a good crisis, ’ but I love the expression and the sentiment in it.
Brexit is a looming crisis for many Irish businesses. Why not use it as the catalyst to begin a fundamental strategic review of the business. With such dramatic changes ahead, what better time to do a root and branch review of the business, its environment, and its goals. The strategic process would include a look at opportunities presented by Brexit, and there will be opportunities. New regulations will evolve, the competitive landscape will change and change brings opportunities if you are looking for them.
Businesses that follow the three steps outlined above will be well prepared for the upcoming Brexit challenges. Conducting a strategic review as part of the process will further strengthen the action plans and position your company to be one of the winners post Brexit.
In this article, I look at some of the specific Brexit challenges facing Irish businesses. I also make recommendations on how to respond to those challenges.
Denis Casey is a qualified electrical engineer and an MBA graduate from UCC. During his career, he has dealt successfully with many of the challenges facing small businesses in Ireland today. He has considerable experience in identifying and managing risks in the business environment.
He has held senior management positions both with ABB (the global blue chip engineering business) and with small privately owned Irish businesses.