Brexit for High Growth Businesses – Boom or Bust?
It’s been almost two months since the EU referendum and I thought it would be a good opportunity for us to reflect on how the vote will impact UK based growth companies.
Unfortunately, I don’t have a crystal ball and the UK government has stated that it will not initiate the process of leaving until at least early 2017, so it is impossible to say exactly what will happen as the discussions and the resulting consequences are some way off.
But we can analyse what has happened so far, and below are the main points that many commentators have raised in recent weeks that I thought I’d share with you:-
- Businesses that have costs in USD or EUR and revenues in GBP will have been hard hit due to the changing exchange rates. Margins will have come under pressure. Having a hedging policy – arrangements to minimize your exposure to risks – in place during turbulent times is always a good idea. If you’d like us to help you put one together, please let us know.
- Exporters will have become more competitive in the short term due to the weaker GBP meaning that it’s cheaper for other countries to buy from us. The longer term outlook is more uncertain until we know more about trade agreements formed directly with foreign governments outside of the EU. However, Canada, Australia and China have all publicly stated they would like to form closer ties with the UK post-Brexit.
- Funding ambitious start-ups might have become more difficult. With uncertainly surrounding exchange and interest rates, the returns on investments are more uncertain. UK venture capitalists may find that institutional investors will be less likely to want to place money in the UK.
- The UK has some great tax reliefs for fast growing companies such as research and development tax relief. European rules on state aid have perhaps limited how generous the government can be in relation to these schemes. To offset the possible negative impacts of Brexit and free from the shackles of EU law, the government may respond with tax cuts and enhancements to these start-up friendly schemes.
- Investor friendly schemes such as the seed enterprise investment scheme (SEIS) and the enterprise investment scheme (EIS) have to be very complex to ensure compliance with EU rules. It’s possible that these schemes could be simplified which would reduce the compliance burden on start-ups.
Although we don’t know for sure what’s going to happen over the next few years, it highlights the need for you to plan effectively for differing scenarios to ensure that your business can continue to grow strongly through this period. If you’d like help doing this, please get in touch with us and we can talk through your options.