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How are UK Finance Directors dealing with the cost of Brexit?

Jeni Peacock
Published by Jeni Peacock on 26th August 2021

SMEs with big ambitions used to find it relatively easy to import parts and materials or sell and export goods to customers across the EU. The process was efficient, timely and with little in the way of extra costs. That all changed at the end of 2020 when the UK left the EU Single Market and customs union.

For many Finance Directors, the Brexit reality means customs duties, EORI numbers and VAT charges. The extra administration and increased costs are creating tough, new challenges. In fact, according to an IoD survey for the Financial Times, almost a third of British companies said that their trade with the EU had suffered a decline since the new rules started taking effect on 1 January 2021.

Brexit has been particularly tough for SMEs

According to Jonathan Geldart, Director-General of the Institute of Directors, it’s been particularly tough for SMEs.

“Small and medium-sized firms in particular are struggling to navigate new procedures around exporting and importing with the bloc; while business leaders more broadly are reporting difficulties in recruiting, following an end to freedom of movement,” he says.

The evidence also suggests that these are on-going problems, not just a temporary blip.

In a separate survey, carried out for the FT by the Chartered Management Institute, 26% of private sector managers said the end of the Brexit transition period negatively affected their turnover in January 2021. Six months later, that figure had barely shifted. Many Finance Directors are also grappling with the next challenge, as some of the mitigations put in place to ease the Brexit transition come to an end in January 2022.

How can CFOs realise new international opportunities?

Some companies (around 17% according to the FT survey) have simply stopped — either temporarily or permanently — trading with the EU. It’s too early to say categorically, but it’s possible that their finance directors are looking to shift their strategic business model to new, international markets to replace lost European markets. Other businesses have responded by instigating major changes to their companies, such as opening new subsidiaries in the EU or moving some of their operations to the EU.

As such, setting up in the EU to serve the European market has become a new challenge for many CFOs. Nevertheless, reports indicate that 100,000 UK firms have already registered their business in Ireland following the referendum. According to InvestinHolland, around 500 British firms are in talks with them about moving to the Netherlands.

This realignment of business models can be an exciting prospect that could provide growth opportunities. But it can also be a major headache for finance teams. They have to deal with higher costs, extra administration and, potentially, the transfer of jobs or relocation of resources from Britain to the EU.

If you’re a CFO tasked with managing the process of setting up an overseas entity – or simply scenario planning the available options – here are three key areas to consider.

  1. Different legislation and operating costs
    If you’re looking to re-orientate your business to trading in new markets outside the EU, you may come up against legislation that differs significantly from the UK’s. It’s always worth consulting an international business law specialist for advice on issues such as intellectual property, taxation, data protection and employment law. It’s also essential to be able to present robust scenario planning data and reports, in accessible ways that help your board and CEO to make these business-critical decisions confidently.
  2. Language and cultural differences
    Successful international businesses don’t focus exclusively on the numbers and metrics: people matter too. Even within the EU there can be different expectations on issues such as non-verbal communication, forms of address and ways of working. Learning at least some of the local language, employing local staff and striving to meet local standards and kitemarks, all help to show your customers that this market matters to you.

    To flourish in the local economy, you’ll also need to have an excellent ongoing understanding of everything from the business climate to the political situation. Make it your mission to know your market and customer preferences inside out. Remember, the EU is made up of 27 nations who often have their own ways of doing business with third countries.
  3. Working with multiple currencies
    Trading internationally, and in multiple currencies, introduces a new level of complexity to your accounting. You’ll need a way to consolidate your international transactions across all your subsidiaries, so you can balance the books easily using different currencies. You’ll also need to be mindful of exchange rate fluctuations, which can have a big impact (positive or negative) on your profits.

    You’ll need a software system that can easily consolidate financial transactions in different currencies. AccountsIQ’s cloud accounting software has advanced capabilities that can handle multiple subsidiaries and automatically convert your currency. We’ll help ensure that you can take care of the accounting side of your international business.
Watch our 3-minute overview of how AccountsIQ makes managing foreign currency transactions easy:

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