Image by Jonathan Rolande – www.jonathanrolande.co.uk
As Brexit negotiations proceed tensions are increasing between the EU and the UK. This is only natural with the stakes so high and the world watching. As a business owner in Ireland it’s interesting to watch the negotiations playing out. However there is a more serious side to the Brexit process for businesses here. In this article I will outline the three steps Irish businesses should take in preparing for life after Brexit.
Step 1 – Prepare a simple financial model for your business.
Preparing a financial model will allow you to run scenarios based on a range of variables – eg exchange rates, tariffs, lower sales volume, higher costs etc. The model can provide valuable inputs to your risk assessment process by helping you to quantify the size of impact a risk poses to your business.
The model should be built up from the product or service costing level and include a ‘what if’ P+L tab. Costs impacted by Brexit should be detailed separately and be adjustable using multipliers. The model should also include input cells for additional costs associated with exporting or importing from the UK post Brexit. When the model is in place the margin impact of various scenarios can be estimated by simply changing a few cells. It will also allow you to calculate the breakeven exchange rate for your business.
A model like this is relatively simple to set up and will be an invaluable tool in helping you to prepare for Brexit.
Step 2 – Carry out a structured risk assessment to determine the likely impact on your business.
With a bit of thought many of the Brexit impacts on your business can be predicted. Once a risk is identified an action plan to deal with it can be developed.
The risk assessment should be structured under heading such as; customers, suppliers, competitors, logistics, operations, legal / contractual, funding and financial. This list is not exhaustive and there may be other appropriate heading for your business – eg manpower if you provide services in the UK.
The task of preparing the risk assessment should not be left to one person. Yes, it’s a good idea to assign overall responsibility to a senior manager, but the risk assessment process must be a team effort. Holding a brain storming session would be a great way to start the process.
Enterprise Ireland (https://ambition.enterprise-ireland.com/prepare-for-brexit) and IBEC (https://www.ibec.ie/Ibec/Brexit.nsf/vPages/Home~brexit?OpenDocument) have prepared useful tools and guides to help you with the process. Once the risks are identified I recommend assigning priorities to them. This can be done in several ways. For instance by using a scoring system like the following:
- Likelihood of it happening – give each risk a rating between 1 and 5 where 1 is very unlikely and 5 is almost certain to happen.
- The severity of the impact on your business – give each risk a rating between 1 and 5 where 1 is very minor impact and 5 is very severe impact.
- The leadtime required to identify and put mitigating action in place – give each risk a rating between 1 and 5 where 1 has a short lead-time and 5 has a very long lead-time.
For instance your business might be exposed to risk due to the introduction of import tariffs by the UK. This might be scored as follows:
- The likelihood of this occurring is fairly high – let’s make it 4
- The impact on your business might not be that high if all your competitors are also based in the Euro zone – let’s make it 2
- The time taken to put a fix is place is quite long – let’s make it 4 also.
- This would then have an overall score of 32 (= 4 x 2 x 4).
If another risk has an overall score of 20, it would be assigned a lower priority meaning it would be actioned after the item with a score of 32.
All of the risks should be scored and ranked in this way. Some common sense also needs to be applied to the ranking system – if the priorities look wrong, then they probably are, so have another go at it.
Step 3 – Develop action plans.
For each risk that is worthy of attention an action plan should be developed. The plans should be developed through the use of brain storming sessions and strategic planning tools. For instance you might do a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis and look to build mitigating actions around your strengths and opportunities. The outcome of the exercise should be a set of SMART (Specific, Measurable, Achievable, Relevant and Time Dependent) targets which in turn are converted into detailed step by step actions plans. At Casey Business Consulting we have developed a model that simplifies this process. If you would like a copy of this just send an email to firstname.lastname@example.org requesting same.
Finally, I’m not sure who coined the phrase ‘never waste a good crisis’ but I love the expression and the sentiment in it. Brexit is a looming crisis for many Irish businesses. Why not use it as the catalyst to begin a fundamental strategic review of the business. With such dramatic changes ahead, what better time to do a root and branch review of the business, its environment and its goals. The strategic process would include a look at opportunities presented by Brexit and there will be opportunities. New regulations will evolve, the competitive landscape will change and change brings opportunities if you are looking for them.
Businesses that follow the three steps outlined above will be well prepared for the upcoming Brexit challenges. Conducting a strategic review as part of the process will further strengthen the action plans and position your company to be one of the winners post Brexit.
In the third article in this series I will look at some of the specific Brexit challenges facing Irish businesses. The article will also make recommendations on how to respond to those challenges. It will be available online within the next few weeks at www.caseybusinessconsulting.ie
By Denis Casey – Casey Business ConsultingShare