BUSINESS ADVICE | Prepare for Brexit
Dealing with higher costs
Since the vote in 2016, the industry has already seen higher costs following the fall in the value of sterling against the euro and US dollar, which saw a number of suppliers upping their prices.
Contracts
Lindsay Ellis, a partner in the outsourcing, technology and commercial team of law fi rm Wright Hassall, says that a no-deal Brexit makes the need for watertight contracts more important – especially with suppliers. “The key issue,” he says, “is whether or not the implications of a no-deal will affect the ability of either party to perform the contract, and the cost of doing so.” Many KBB products are imported from the
EU. If a contract with a supplier refers to specifi c timelines for delivery, then the onus to perform the contract should rest with the supplier. Ellis advises that if a supplier fails to deliver on time, they could be deemed to have breached the terms through non-performance and the contract could be terminated. There is also a contract between retailer and consumer with a promise to install a bathroom or kitchen within a given time. Things could get messy for the unprepared and so a clause in your terms and conditions to cover such an eventuality might be worthwhile. Termed ‘force majeure’, this would help a retailer deal with matters outside their control, especially where there could be a claim for compensation. Lawyers always recommend contracts should be regularly reviewed. Ellis points out that “anything signed since 2016 should have taken account of Brexit. Retailers should be alert for any terms that could see cost passed on to them”. In other words, read a contract carefully before signing it and terms such as “where possible” negotiated out.
Employee issues
Another obvious issue is how Brexit will affect workers and employers in the long run. Matthew Davies, a partner in the business immigration team at Wright Hassall, suggests that beyond the EU Settlement Scheme, employers should audit their staff to gauge the numbers and profi les of European Economic Area national and dependent employees and identify key staff in these categories. “Questions to ask include – do staff understand the impli cations of Brexit for their immigration status? Is worry or doubt about it making them less likely to stay in their jobs or in the UK? And what information and support have we offered? What can we offer?”
Davies suggests that those employers who reassure their workforce will be a step ahead of those that don’t.
28
From January 1, 2021, free movement will end and employers will need to pay attention to the new UK points system announced by Boris Johnson.
Under the scheme, the most highly skilled, who can achieve the required level of points, will be able to enter the UK without a job offer if they are endorsed by a relevant and competent body.
All applicants, both EU and non-EU citizens, will need to demonstrate that they have a job offer from an approved sponsor, that the job offer is at the required skill level, and that they speak English. In addition to this, if the applicant earns more than the minimum salary thresh old then the individual would be eligible to make an application. More at https://tinyurl.
com/vt2gwgg.
The same can be anticipated if new tariffs are imposed. Retailers face two choices: absorb any cost increases or pass them on. Both scenarios have their risks.
As Lee highlights: “Passing costs on will make some uncompetitive in the marketplace, making it diffi cult to win new work. At the same time,
trying to absorb costs could see
profi tability eroded to an unmanageable level, leaving the business unsustainable.” For retailers or importer/distributors who
supply retailers, currency exposure can be reduced by using a currency trader to fi x the price
in advance. For smaller businesses, courses of action such as cost-cutting may be Premises
Whether leasehold or freehold, the showroom is a retailer’s largest outgoing. Mary Elliott, a partner at law fi rm Fox Williams, thinks it sensible for businesses to consider if they are at risk from a lease that’s about to end or whether they could take advantage of vacant properties to lower the rent. As Elliott points out, with more and more empty shops on the high street “landlords are keen to hold on to good tenants and this can be used as a bargaining tool to fi x your rent for a longer period, agree to the insertion of a break clause or even allow for sub- letting
if the
property is superfl uous to your needs”
more appropriate.
But can cutting costs really help? Possibly, but only if it’s done carefully, because reducing costs must be achieved without reducing the level of customer service provided. Many retailers may not want to change their major suppliers. They could look to make signifi cant savings in other areas such as telecoms, utilities, stationery and vehicles.
Finance
Access to consumer credit has been tightening in recent years and interest rates are in a state of fl ux. One Bank of England report suggests rates may rise, another hints at
falls because of Brexit concerns. Both credit and interest rates could drive a run on revenue. Combined with a housing market that has softened and a slowdown in new-build and other construction, Elliott says retailers need to “identify new fi nancing opportunities, as well as checking that fi nances are readily accessible when most needed. Overdrafts are a classic vulnerability.” They are repayable on demand and are often the fi rst facilities to be rescinded by any bank wanting to reduce its exposure. Retailers must examine their use of fi nancial products –
overdrafts, commercial
mortgages or merchant acquirer – and seek out new and better deals where possible.
Crystal ball
No one has a crystal ball, but planning for the unexpected offers one key benefi t – any business that under - stands its strengths and weaknesses will gain an advantage over those that haven’t prepared at all.
· April 2020
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