Our UK SME Risk Report [link] has looked behind the headlines to assess the everyday impact of Brexit on UK businesses. It is no great surprise to find a majority (56%) of the 1,300 UK SMEs surveyed said they were concerned about Brexit-related risks. That’s understandable given the negative impact on staffing, supply chains2 and costs3 that, for some, have flowed from Brexit to date – especially in light of the compounding effect of the COVID-19 pandemic.
Brexit risks for UK businesses
Indeed, businesses responding to the survey highlight many of those very same issues. At a high level, the number one Brexit-related risk was fear over its impact on the economy, but UK businesses also see real risk at the operational level. For instance, the ability to trade in Europe and ‘border delays’ are both concerns for a quarter (25%) of UK businesses, while a similar number are concerned about increased supplier (24%) and operating (23%) costs.
In addition, 15% are concerned about the risk of late payment and 14% are concerned about their ability to recruit and retain talent.
The impact of Brexit on UK businessesThe report also highlights how these risks have impacted on the everyday operations of UK businesses as they adapt to a new, post-EU landscape. Almost a third of respondents have experienced supply chain delays, and the associated increased costs – in January 2021, the cost of moving goods to the UK from France, for instance, rose by 47% year on year.4
Delays and increased costs are however, only one side of the story, and some UK businesses are being squeezed from both directions. Almost a quarter (22%) reported a reduction in trade due to Brexit and a similar number (19%) are battling with decreased cash flow post-Brexit.
On top of that closer to one fifth (18%) reported that their workforce has shrunk due to Brexit, perhaps confirming their fears around their ability to recruit and retain staff.
Mitigating the impact of Brexit on UK businessesOf course, not every UK business has been negatively affected by Brexit and some have coped better than others. In fact, overall, more than half of respondents (56%) said that their business has responded well to the impact of Brexit.
The question then, is what are UK businesses doing to mitigate the impact of Brexit? Clearly, every business will face its own unique challenges and risks, but one emerging trend is the relocation of operations affected by border delays and supply chain issues.
For instance, it seems that around 38% of UK businesses want to ‘localise’ supply chains, by switching to UK-based suppliers as a means to avoid border disruption5 for example. Meanwhile, on the other side of the coin, some businesses that rely heavily on EU markets for sales are considering establishing operations in the EU – to be closer to important markets and again avoid export issues related to Brexit.6
It seems likely meanwhile, that some will look to cut costs in response to failing cash flow, as well as training to upskill existing staff in the face of skilled staff shortages.
Mitigating Brexit: the role of insurance
Our UK SME Risk Report also assesses how UK businesses see the role of insurance in mitigating the risks from Brexit, and the picture here is quite mixed.
On the one hand, a quarter of businesses have already changed their insurance plan structure to protect themselves against the impacts of Brexit. On the other however, a similar figure (24%) believe that investing in business interruption (BI) insurance will help to defend them against Brexit risks – but this is a common misconception, since BI cover is usually triggered by property damage, which is unlikely to come as a result of Brexit.
You can read more about Brexit and BI insurance here, but one insurance product that UK businesses may turn to in order to mitigate risk is trade credit insurance, which helps to replace lost income when customers go bust and are unable to pay their bills.
In fact, trade credit insurance might prove a particularly important cover at a time when business insolvencies are on the rise. According to data from the insolvency service, business insolvencies grew by 31% from the first to the second quarter of 20217 – so the ability to insure against bad debts could be a way to insulate a business against the knock-on financial effects if customers cease trading through insolvency.
Clearly, trade credit insurance is just one product that could help to mitigate the impact of Brexit on UK businesses and, depending on the nature of your business, other solutions may be available.