Brexit. The word alone might inspire any reaction, from mild interest to moderate concern to total terror, on the part of small business owners.
Wherever you fall on that spectrum, you can't afford to ignore the risks and opportunities Brexit presents.
In case you've been living in the proverbial cave for the last few months, "Brexit," a contraction of "Britain" and "exit," refers to a June 23, 2016 referendum in which voters in the United Kingdom (U.K.) instructed their government to leave the European Union (EU).
While it could take many years for the U.K. to unwind its EU membership, the complicated process is sure to disrupt international trade agreements and affect U.S. companies that have operations, suppliers or customers in Britain or the EU.
Here are six things small business owners should consider doing now:
- Keep calm. The Brexit vote triggered an immediate reaction in global financial markets, and what happened wasn't pretty. But those effects have already begun to fade. The uncertainty that's left is likely to last, and that's never good for economic growth. Small businesses need to remain alert, nimble and patient while the full implications of Brexit become clear.
- Manage currency risk. Doing business internationally involves currency risk, and Brexit will continue to impact the relative values of the dollar, pound and Euro. Small businesses should review their currency arrangements and look for ways to protect themselves against fluctuations in exchange rates. If the U.S. dollar remains strong, opportunities may exist to import supplies and finished goods at lower cost.
- Manage credit risk. Brexit could hurt some U.K. companies' ability to service their debt and pay their bills. Small businesses that offer credit to U.K. customes should monitor those accounts to determine whether those credit lines should be scaled back, closed or sent to collections. Credit reports from Dun & Bradstreet can help small businesses make smart decisions about the credit they offer their customers.
- Borrow at low rates. The Federal Reserve has signaled its desire to raise its benchmark federal funds rate this year, perhaps in September. Whether Brexit will prompt the Fed to postpone that agenda until 2017 (or beyond) isn't clear. In the meantime, credit-qualified small businesses can take advantage of still-low interest rates to buy new equipment, real property or other assets. Refinancing existing loans also might make sense.
- Update contracts. As Brexit moves forward, numerous rules and regulations throughout the U.K. and EU could be affected, and every one of those changes could impact U.S. companies that do business in those markets. Small businesses should anticipate that legal contracts may need to be revised. Updating agreements that involve licensing or distribution territories should be a priority.
- Re-evaluate expansion plans. No one knows exactly how Brexit will affect the U.S. economy. Will the vote turn out to be a statistical blip? Or could a U.S. recession be on the horizon? Either way, small businesses should reassess their plans to determine whether investing in new manufacturing facilities, introducing new product lines, hiring more employees or making other expansion-minded moves still make sense. For some U.S. companies, the timing might be much worse; for others, it could be better than ever.