Brexit is Set to Hit Early-Stage Companies Hard. Here’s How to Prepare.

With the UK scheduled to leave the European Union on October 31, business leaders around the world are still unsure how Brexit will affect their companies. Most concerning is the possibility of a no-deal Brexit, in which the UK would exit the EU without a withdrawal agreement.

While organisations of all sizes would feel the impact of a no-deal Brexit, research shows that early-stage companies would be hit particularly hard. Citing research by Tech.eu, ZDNet’s Francis Marcellin writes that there are multiple danger signs for early-stage startups across the country. “Following the Brexit vote in 2016,” Marcellin writes, “the report notes how ‘several notable funding sources for early-stage companies were put in jeopardy’ in the UK”.

Although Brexit is approaching rapidly, there are steps that you can take to prepare your company to navigate a ‘no-deal’ scenario. Here are a few things that leaders of early-stage companies should think through over the next few weeks.

Prioritize Talent Acquisition and Retention

It is highly likely that a no-deal Brexit will leave early-stage companies facing a labour shortfall and the prospect of losing talent in key roles within their organisations. For this reason, it is critical to identify which staff are most vulnerable and assess the steps necessary to help retain them. These can include assisting them in applying for citizenship, if appropriate, or applying for renewed work visas as soon as the procedure is agreed by the government.

Last year, The Guardian reported from a seminar for small businesses on future-proofing companies against Brexit uncertainty where all panelists agreed that retaining top talent was one of their biggest concerns. One alternative to losing staff that they highlighted could be allowing them to work remotely from their home countries or creating their own R&D office outside the UK to avoid legal difficulties and reduce the financial burden.

With the possibility of a no-deal Brexit looming, analyse your employee retention data to understand why top performers have left the company in the past and identify how you can address those issues to prevent further departures. For some companies, remote work may be the answer. But no matter what you discover, take the next few weeks to optimise your employee retention strategy.

Audit Your Finances and Investments

Sean Lightbown of Pitchbook writes that startup fundraising in a post-Brexit world could be difficult for UK companies. “At a fund level, the disappearance of historic LPs paints a bleak picture,” Lightbown says. “The European Investment Fund’s annual report for 2017, for example, showed that it backed only three UK venture funds that year, compared with 20 in 2016.” If this continues, Lightbown writes, the overall pool of venture capital funds could be relatively small for UK startups.

The good news? Lightbown says that funds are still available today. Even if you think your organisation does not need additional funds to make it through the next couple of years, take a second look at your finances. Perhaps another round of fundraising will prove necessary, especially as the UK faces an unclear future after Brexit, with no-deal the likely outcome. Not only could it prevent future reductions in headcount or expenses, but having additional cash on hand puts your company in a strong position to explore new business ventures, even during an economic downturn.

In addition, being based in the UK should not preclude UK companies from looking to international investments as sources of funding. While international funds may not be as easily accessible to UK companies, there is still significant interest from America and China in UK businesses, which companies may look to take advantage of.

Assess Your Ability to Enable Customs Clearance

With so many facets of Brexit still left to be determined, this is an ideal time to audit your company’s ability to trade legally with the European countries that are remaining in the EU. While legislation is subject to change, it’s still wise to ensure that you have the systems in place to prevent business activity from coming to a halt on October 31.

Citing a 2018 report by PwC Ireland, Ellen Tannam of Siliconrepublic.com urges small businesses to audit the following items:

  • Customs and trade registrations, authorisations, and reliefs required;
  • Ensuring on-time duty payments;
  • Securing available duty reliefs; and
  • Reviewing regulatory licensing requirements.

Tannam adds that for small businesses, engaging a customs agent will be crucial. Although there’s still some time before the October 31 deadline, this checklist is more complex than it might seem.

Take stock of your business activities

Given the turbulence likely to accompany Brexit in whatever form it takes (but especially a no-deal Brexit), moving swiftly to address issues as they arise, whether in terms of workforce, IP protection, data protection issues, and even litigation, will be important to minimize disruption and reduce unnecessary expense. Taking time to get an accurate picture of your business’s operations is time well spent. Knowing how many EU workers you employ, whether any of your clients are based in the EU, and if any contracts you are a party to fall under EU countries’ law, will all help you move rapidly to deal with whatever form Brexit takes.

Our firm has helped numerous small business clients navigate the complexities of Brexit. Want to learn more? Click here to get in touch.

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