Prepare for Brexit: Finance

Navigating through and beyond Brexit successfully will require strong financial management and exchange rate volatility is the key challenge to be faced in the short to medium term.

Currency risk is a factor that Irish exporters have been dealing with for decades in trading with the UK. However, the rapid and recent change in currency value is different and more serious than that experienced during the major depreciation of sterling in the late 2000s.

Brexit means that the current sterling weakness is different from the normal exchange rate cycle and things could get worse during the British government’s negotiations with the EU and into the future.

The increased exchange rate cost cannot be passed onto the consumer which makes Irish goods and services less attractive relative to their peers in the UK market.

In addition to managing currency risk, it is important for Irish companies to track and manage their income and expenditure in light of Brexit. They also need to embed a strategic financial management focus in their leadership teams to anticipate future challenges and opportunities.

Possible Challenges

The bottom line

The obvious effect of weakening sterling is damage to Irish companies’ profitability and cash flow. Immediate actions that could be taken include calculation of the exchange rate at which UK sales are no longer profitable, and rerunning financial forecasts at current exchange rates and assessing the projected outcomes.

For many Irish businesses, the best option to reduce the impact of exchange rate movements will be to seek to deal in sterling with their suppliers.

You could also discuss currency hedging options with your bank or financial services provider in order to minimise the risks faced by your business as a result of lower sterling valuations.

In very simple terms, currency hedging is the act of entering into a financial contract in order to protect your business against currency volatility and protect underlying business margins. The main benefits are protection and cash flow certainty.

Customs, tariffs and taxation

As the UK will remain an EU Member State for two years after Article 50 is invoked, few tax changes are likely to occur in the short term. However, as most indirect taxes (VAT, customs duty and excise duty) are EU-based taxes, it is likely that these will be impacted more by Brexit than direct taxes after that time. It is expected that all trade between the UK and the EU (including Ireland) will be viewed as imports and exports and hence extra duties would be payable by Irish firms.

This will translate into an increase in price of your product or service in the UK and higher costs associated with supplies from the UK. There could be additional administration required to deal with compliance and increased delivery times for supplies and products.

Keeping abreast of developments generally in this area now will help you to manage any customs, tariffs and taxation changes if and when they occur.

Prepare for Brexit

Your business can start to prepare for Brexit by using the dedicated Brexit SME Scorecard tool, which is available free from Enterprise Ireland. The tool looks at a company's business operations across six areas - Business Strategy, Operations, Sales and Marketing, Finance, Innovation and People Management. You can start the short questionnaire and come back to it at any time. Your results report will show the priority areas that your business should consider addressing and serve as a useful kick-off point to start preparing for Brexit with your business team.

Watch John Finn of Treasury Solutions on FX Management here.


Get your business prepared for Brexit with the free Brexit SME Scorecard.