With continuing uncertainty about the outcome of Brexit and increasing focus on preparing for a No Deal, we share our experiences of working with clients on Brexit planning.
Over the last two years we have spoken to hundreds of business leaders about Brexit, with our recent survey of mid-sized businesses reflecting this work.
We have identified five stages of Brexit preparation – ranging from those who have done no planning to those who have executed contingency plans.
We have characterised the different groups we meet most frequently (below) and set out some ideas for what to do next if you recognise yourself in any of these.
Unconcerned - No plan needed (9%)
“I don’t export so Brexit doesn’t affect me”
More and more organisations are seeing a need to plan for Brexit. Our survey suggests that between summer and winter 2018, the percentage of mid-market organisations believing that no plan was needed fell from 42% to just 9%. Organisations in this group tend to have minimal interaction with the EU and few, if any, European workers, leading them to feel well insulated. We encourage businesses to think about the potential economic impacts of Brexit along with engaging their supply chain to assess any vulnerabilities.
The mechanics of Brexit may not impact you directly, but it will affect your employees, customers and suppliers, your input costs or the infrastructure you use. An extreme example we came across (in an organisation that has good Brexit plans) is a charitable stately home in Kent; on face value this tourist attraction looks unaffected by Brexit but management realised they will be severely affected by motorway queues from Dover, which past experience has shown prevent visitors from reaching the grounds and severely impacts revenues.
Unprepared - No planning yet (10%)
“Its all too complex and uncertain; I can’t plan for it”
The issue for many has been that, without clarity over what Brexit will look like, they feel unable to plan. And it can be difficult to know where to begin or how to prioritise, so this is where many of our conversations with clients understandably start. Firstly, you need to identify the risks and opportunities to measure your exposure. We work with clients to map ‘Brexit hotspots’ against their business. In many cases we identify fewer risks than they expected; different risks to those their competitors may face; and we always find some opportunities as well.
“We have assessed the major risks and opportunities”
For many businesses the first step is assessing the possible risks and opportunities created by different Brexit scenarios - providing clarity on where they will, and won't, be impacted by Brexit. We suggest these scenarios should include: No Deal, a free-trade-agreement post transition and a Norway + outcome where the UK remains in the Single Market and Customs Union.
Some businesses are rightly worried about committing to investment they might not need. Scenario planning has helped people to work through the uncertainty, identifying top priorities and ‘no regret’ actions, which will stand them in good stead in all scenarios.
In recent weeks, as the chance of No Deal has increased, we have seen more and more businesses planning for this outcome. Our experience is that most No Deal plans also have many elements that will apply in the event of a Deal as well. This is increasingly important as investors and customers expect you to be able to report on your Brexit impact and action plan.
Next step – ensure financial reports include risks and opportunities identified. You will need to factor Brexit into your financial reporting.
Preparing – Built detailed contingency plans (36%)
"We have done a detailed assessment of the impact and we have a plan for what we would do”
The most common activity for organisations at this stage is to be fine tuning contingency plans. Having conducted an assessment of the risks and opportunities presented by Brexit they now have plans based on their findings.
Plans need to develop over time – don’t leave them on a shelf. They need to be reviewed to reflect the latest developments and you need to make your planning more detailed as we get nearer to Brexit. You also need to check they cover everything they should. Often people develop a Brexit plan that applies to their organisation but does not anticipate what their customers may be doing (such as panic buying or reducing spend). In some cases we have seen specific plans for stock and manufacturing to stockpile in March 2019 but these do not join up with the plans of their haulers, suppliers and customers. This is the stage when specific expertise may be needed to develop a particular aspect of a plan.
Next step – look at how your plan fits with others in your ecosystem; stress test your plan; and develop the details e.g. setting up new customs processes in time for Brexit and identify when you need to pull the trigger.
Implementing– Executing contingency plans (17%)
“Contingency plans have been executed and actions taken”
Those firms with the lowest risk-appetite tend to be in the most heavily regulated sectors, such as financial services and pharmaceuticals. Many of the larger players in these sectors made decisions to ensure business continuity soon after the triggering of Article 50. In recent months we have seen more smaller companies, especially in manufacturing and distribution, execute contingency plans – including re-routing supply chains, establishing operations in the EU and stockpiling.
Once you start executing plans, you need to assess the follow-on consequences. This may include tax implications if plans include relocating activities to other countries. It also means tightening project management to ensure you track interdependences between different workstreams, and that you have agile governance that enables quick decisions if you encounter internal obstacles or new external factors.
Next step – step up project management and regular progress meetings. Track interdependences and critical milestones. Ensure tax implications of decisions have been considered.