Brexit - keep liquid and carry on taking the “Pils”!

01 March 2018

We know very little of the detail around Brexit. Yet. But that shouldn’t mean we sit around waiting to find out.

Change readiness is a skill and an asset that can be developed right now. Adopting nimble ways of working, encouraging a creative mind-set and hiring top talent (on the payroll and advisers) will stand any organisation in good stead for all sorts of stormy weather. There are “measures” the finance team can be taking right now.. and it’s all about the money!

For any business bringing goods in from Europe - whether to immediately sell on or to build in to part of a production process - there are things to mull. Logistically it is likely those supplies will take longer to get to you as borders become less open.

Can you source the same stuff domestically on a comparable commercial terms? If not, do you need to increase inventory levels to safeguard continuity of supply? If so, where will you store it and how will you fund the additional costs of storage and the higher levels of inventory? Where? Do you need to review your logistics provider’s capability? Can you pass those costs on?

If, as we expect, businesses will have to pay the VAT on imports “up-front”, how will that affect cash flows and levels of working capital?

Has the business the headroom on facilities or within covenants to stand the shock of these collectively? Will your suppliers require letters of credit? Can you source these and afford them?

All things considered maybe you can source the same stuff domestically now on a more cost effective basis.

Similarly, there are challenges shipping goods out. Delivery lead times will extend and that will affect the order to cash cycle. It may impact rates of acceptance of your goods by customers (late deliveries, perishables etc.). All told credit control will need to be tighter than ever before. Might the solution be to have off-shore warehousing to reduce delivery times? What levels of stock and at what cost? Manufacturers will need to think about scheduling extra production too.

So what to do? Get an action plan together. Tackle the current state.

What are current inventory levels (raw materials and finished goods)? Are we overstocking already? How capable is our finance function to absorb the additional burden of credit control, financing, cash flow and working capital management? How well do we understand our commercial terms and contracts? How capable are our systems for production scheduling, logistics and financial control? What are our supply chain contingencies? Do we need European based group companies; have we done the tax planning? How flexible are our funding sources?

Ask all the hard questions now and be prepared.

At AAB we help organisations develop comprehensive strategies and operations around finance, operations, supply chain and technology. For more information please contact Jim Muir (consulting@aab.uk) of the AAB Consulting Associate Network, or your usual AAB contact. 

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