AUGUST 3, 2016

How will start-ups fare in post-Brexit Britain?

The result of the EU Referendum was met with disbelief and shock by large swathes of the small business community.  According to the Financial Times, start-up companies were “shell-shocked”; not surprisingly given that surveys showed that 70-80% of business executives were in favour of staying in the EU.

 And now, given that we are surrounded by uncertainty, how will the UK’s small business owners navigate the unchartered waters ahead? Is it all doom and gloom?  Or are there some advantages to be had?

Brexit uncertainty

Confidence can be key to business success, but even the most confident business person might feel challenged at the moment.

Despite an expansion of 0.6% in the British economy between April and June this year, signs of retrenchment have now been reported in major industries, including the construction industry, car factories and high street retail.

According to The Guardian newspaper, the Society of Motor Manufacturers and Traders (SMMT) said its members were gloomy about the prospects for growth, jobs and investment, while the British Retail Consortium (BRC) said jobs were being shed in the months leading up to the referendum, and the Royal Institute of Chartered Surveyors (RICS) said workloads for construction had weakened.

In the case of car manufacturing, performance was said to be upbeat in the run up to the referendum, with a rise in output of 13% compared to the same period in 2015 and the best half-yearly performance since 2000.

However, Mike Hawes, chief executive of the SMMT, has warned that the UK’s membership to the single market was linked inextricably to this success.: “The latest increase in production output is the result of investment decisions made over a number of years, well before the referendum was even a prospect.”

The BRC, meanwhile, has reported that the number of full time jobs in the industry fell by 2.4% in Q2 2016, when compared to the same period a year ago.  And according to a survey by a business lobby group, the CBI, retail sales are falling at their fastest rate since 2012.

It’s fair to say, though, that economic news and views have been mixed since 24th June.  While business surveys have indicated that the economy may be heading for a crash, evidence that industrial production and consumer spending were both in rude health in the pre-referendum period is said to have heartened the Treasury.

Frances O’Grady, the general secretary of the TUC, said: “It’s good news that growth strengthened in the last quarter before the referendum. The priority now is protecting growth from the fall in business confidence, and the risks to future investment, following the Brexit vote.”

Suffice to say that it is still too early to tell what impact Brexit will have on small businesses and the wider economy but even so, given their very nature might small businesses be best prepared to weather a Brexit storm?

The road ahead

Many high-profile business people believe so, and some go as far as to say that small businesses and start-ups are best placed to lead the recovery.

“We should expect a bumpier economic climate in the short term, but as Mark Carney has commented, we have a resilient UK financial system and the ‘real economy’ will adjust. Private businesses and SMEs are at the heart of the real economy and they are nothing if not resilient, flexible and adaptable. I am confident that they are well equipped to weather the changes,” said Suzi Woolfson of business advisory and accountancy firm PwC.

Writing in The Telegraph, financial journalist Matthew Lynn clearly agrees. Arguing that the UK will continue to be attractive to entrepreneurs post Brexit, Lynn reports that in the couple of weeks after the referendum, the number of new businesses registered in the UK actually went up, not down.

He also refers to research carried out by Company Warehouse, a business formation agent, which reveals that from a sample size of 4,700 new entries in the week following the referendum, 13% of directors starting new businesses were from another EU country. That was up on the 11.5% recorded in the previous six months.

“We were pretty sure that we would find a dramatic fall in the number of EU citizens starting businesses in the UK given the uncertainties over their future status post-Brexit,” the report from Company Warehouse concluded. “In fact, we found that the numbers had gone up.”

While not reading too much into these early figures, Lynn goes on to state that lighter regulation, as brought about by a UK exit, will make it simpler to set up a company in the UK over anywhere else in Europe.

“Outside of the EU, we can ease the burden on entrepreneurs further. According to the World Bank, the UK is already the 17th easiest country in the world in which to start a business. France is 32nd, Italy 50th and Germany is 107th.”

He also believes that we will soon have the lowest corporation tax in Europe.  Our rate, which was scheduled to come down to 17%, is now likely to drop to 15%, he says.  Again, that compares to 29% in Germany and 33% in France.

Finally, the fact that the UK’s migration policy can now embrace high-skilled Indian, Israeli, or Chinese staff, as well as EU nationals, Lynn highlights as a key benefit. That and the fact that the huge devaluation of sterling has just made the UK a lot cheaper.

But economic and political issues aside, entrepreneurs, by their very nature tend to be both optimistic and opportunistic, and are less likely to wait for macro-economic data before making decisions.

Jim Duffy, CEO of business accelerator Entrepreneurial Spark, suggests entrepreneurs know how to adapt quickly to volatility, making the most of any change on the horizon.

“True entrepreneurs are opportunity hungry and with change comes that opportunity.”

“Entrepreneurs will simply just get on with it and what’s important today is that they continue to focus on planning to ensure that they can navigate any turbulence in the coming days and weeks, while exploiting bigger opportunities in the months and years to come.”

Goldstein Legal understands the business challenges you face in this changing landscape, both from a legal and from a commercial perspective and can help you build a legal framework that protects your business and promotes its success.

For an initial free consultation with one of our expert commercial lawyers, get in touch.

Young female entrepreneur working in a home office at her desk

In our latest blog, we ask what’s the outlook for start-ups and small businesses in a Brexit Britain

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Goldstein Legal is part of Nexa. Goldstein Legal are members of the British Franchise Association and offer a range of legal services for franchisors and franchisees, regularly advising both businesses and individuals. Contact any of our friendly team for a confidential, no obligation chat to find out how we can help you.
Roz Goldstein

Roz Goldstein


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