What impact might leaving the EU have on finances?

22 July 2016

Business will go on as usual and future financing options will still need to be considered. These will need to be assessed on how appropriate they are and how attainable they are, as they were before, but even more so in light of Brexit.

To secure finance/investment businesses will need to ensure that the effects of Brexit have been considered in their business plan. This will give the best possible chance to secure funding. Being open minded is key – the funding environment has developed considerably over recent years and there are new options available.

 

Equity finance

At this stage it is difficult to assess how investors will react to Brexit. By and large they are likely to be indifferent as the pros and cons on either side cancel out. What we might expect to see is a Government response which will encourage inward investment. This could be through an expansion of the already generous investment tax relief schemes (EIS, SEIS, VCT) or via a lowering of the income tax rates to encourage wealthy individuals to remain in the UK.  Indeed foreign investors may find a UK business more attractive due to the weakening of the pound.

 

Debt finance

British banks have been told they must keep lending to drive the economy after the commotion of Brexit. The Bank of England is looking to avoid a credit crunch of the type seen in 2007 where lending seized and customers were unable to access vital funds. This leads to a deepening of the recession and a delay in recovery.

It is widely thought that the Bank of England will lower the base rate from its already low current record of 0.5%. This will make borrowing even cheaper and act as a stimulus to the economy. The downside however is that it could drive up inflation.

Asset financing might be more attractive in the short term until the full ramifications of Brexit can be determined. Leasing and hire purchase could be a short-term solution for a business to access new equipment which would otherwise be unaffordable because of cash-flow constraints.

 

What can you do now?

  • Fully investigate all financing options – think more broadly than the traditional financing options that you have stuck to in the past.
  • Assess requirements for future capital investment and consider risks involved if faced with economic hardship.
  • Consider whether a risky project would benefit from asset financing rather than capital investment so a quick exit option is available.
  • If the business is looking to raise finance in the short-term, has the effect of Brexit been factored into any business plan:
  • Establish the effect of the fluctuation in the value of the £ on sales and costs in overseas currency
  • Review and potentially revise previous forecasts
  • Review cash flow predictions
  • Determine whether the life-span of planned projects needs to be adjusted and whether the project is still viable in light of this.
  • Consider the possibility of altering the way projects assessed as being no longer viable are structured – asset financing rather than asset acquisition.

 

What we can do to help?

MHA MacIntyre Hudson wants to reassure clients that while there may be some challenges ahead, our specialists are monitoring developments and we are able to provide advice and guidance on all areas of your business. If this report highlights any concerns, please get in touch.

 

Brexit: Business planning guide

To find out more about Brexit's impact on your business in the long term and how you can implement plans to mitigate the effects now download our 'Brexit: Business planning guide'

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