To quote the post-Brexit vote media coverage, small business confidence “fell off a cliff” after the result. The fallout had instant ramifications for SMEs. The pound’s value dropped, investors became far more cautious and nothing but doom and gloom was forecast from now until eternity. It appeared that the Brexit vote had laid waste to our economic landscape; that small businesses in particular now faced a battle for survival akin to a vulnerable animal alone in the harsh wilderness.
However, small business confidence didn’t stay down for long.
In October of 2016, reports emerged of market confidence rising and in January 2017, the Federation of Small Businesses released an analysis of SME confidence for Q4. Taken from a survey of small business owners, the data concluded that confidence now stands at the same level as it had done prior to the referendum.
This seems to go against everything we know and have been told about Brexit. In a time of great uncertainty, small business owners have the same confidence level as they did when we weren’t circling the edge of the EEA (European Economic Area). Why, then, is confidence up?
Fear-mongering was rife during the hard-fought campaign. Predictions about how things would collapse following an out vote spread like wildfire. Imagine the shock of small business owners, then, when the dust settled and their headquarters were still standing.
Contrary to the forecasts of doom-and-gloomers, the British economy actually grew after the Brexit vote. Q3 of 2016 saw a 0.6% growth rate, with total sales revenue for UK businesses on the up.
The answer to this new-found confidence is simple: Confidence is high because many small business owners have seen no reason to suggest Brexit is going to have a negative impact. All the tales of misery and bankruptcy woven into the psyche of the terrified pre-vote business owner have simply not materialised. Yes the pound still remains low, diminishing international purchasing power, but businesses operating in the UK has been largely unchanged by Brexit.
While this confidence is good for UK business, it would be dangerous to assume that things will stay this way. Despite the fact that we’ve voted to leave, I’m sure nobody needs reminding that we haven’t even started the process yet.
Confident business owners may be quick to point out that this again sounds like fear-mongering, and if fear-mongering was not to be listened to during the campaign, why should it be listened to now?
While the Brexit vote has provided a very good example of why we shouldn’t be so quick to give into the fear, we are still far from stable ground. Brexit is very much on the way and it will change things.
Theresa May, doing her best impression of a mattress salesperson, has talked endlessly about ‘hard Brexit’ and ‘soft Brexit’. Despite the lengthy timeframes, our prime minister has promised that Brexit is coming and that it will happen. Simply put, you can’t leave the European Union without an impact to trade.
Currently, it is business as usual because nothing has actually changed — on a fundamental level, at least. Trade deals are still in effect, the red tape has yet to go up and while big businesses and banks are exploring new avenues outside of Britain, nobody has actually made the move yet.
The economic landscape post-referendum is very much the same as it was prior, which would explain why confidence is back in the same position. However, we know with absolute certainty that it will not stay this way.
Confusion lays around the current Brexit plan, which does nothing to allay fears of troubled times ahead. Talk of trade deals continuing with European nations, as well as other international bodies like the US, brings hope to small businesses, but they remain speculation at this point.
Once Article 50 is enacted, an upheaval will occur. We cannot be certain what that upheaval will be or how it will affect small businesses, but there is no avoiding the fact it will happen. The confidence experienced by small businesses in the current climate is no bad thing; it should be relished, enjoyed and, above all, utilised.
The state of Britain’s economy may or may not be better after Brexit, but with the new, unprecedented changes on the horizon, market uncertainty looks highly likely during the process of leaving the EEA. Uncertainty in business breeds indecision and safe choices, which spells trouble for small businesses.
The biggest threat during uncertain times is a lack of investment and access to capital, which could see many businesses struggle. SMEs should not be preparing for the economic apocalypse, but they should be preparing for some rough weather in the near future.
Market growth after a leave decision does not mean plain sailing from here on in. This is more likely to be the calm before the storm. However, while the market remains optimistic, SMEs should take the opportunity to make preparations and secure the investment they will need in the future.
Far too many small businesses are unprepared for shake-ups from Brexit, don’t let the current confidence levels trick you.
Russell Smith Chartered Accountants
