Predicting the future IN or OUT of the EU
Jonathan Hartley
Account Director - UK B2B & Commercial.- Samsung Home Appliances (BTR, PRS, BTS, PBSA, National House Builders)
With an EU referendum hot on the agenda of British businesses currently, it raises the question for many companies
' How do we forecast our future?’
This question can be applied to many different factors of the business.
- Stock holding
- Sales revenue
- Recruitment
- Logistics
- Profits
- Strategy
These are all most definitely considerations at the forefront of companies and their employees 'to do' list at this present time.
It’s two way focus, as many will have reliance on products they import from the EU, as well as also many having clients within the EU that they have supplying relationships additionally.
Many of these exporting relationships are vital to the stability of the overall revenue streams, as their reliance is heavily weighted against the trading of their overall business.
Stock Holding
With this in mind there is a fine balancing act of just the right amount of stock being held, verses the possibilities of working capital being tied up if trading agreements cease or become economically unstable to service.
On the flip side of this, sales and trading partnerships may well be showing a ‘false’ picture as EU businesses also reflect on their current purchases and stock brought in from UK companies they trade with.
Therefore, when the vote is cast the 'trading confidence' potentially could go one of two ways. If this happens there could be a spike in demand from UK suppliers to their EU customers, but will the stock levels be sufficiently available and delivery lead times maintained?
If confidence doesn’t return, will UK businesses have overstocks due to overestimating demand, or somewhat ‘gambling’ on the outcome of the vote.
No doubt this is a tricky situation and can only be made harder if strong lines of communication and trust are not maintained, but is that enough?
Sales Revenue
The sales revenue will be affected either by, a positive spike, or a maintained level, but could also noticeably take a heavy decline, depending on the specific businesses involvement in EU contracts, it’s anybody’s guess and therefore we are predicting the future, the unknown.
Recruitment
Planning, reaction times and flexibility to market changes will be required in order to ensure budgets and revenues are balanced accordingly to the demand required. This will also encompass the ‘headcount’ of many companies.
- Do we have enough employees to effectively support trading if supplier confidence is strong?
- Do we have too many employees after the vote required for our trading?
In or Out there will be requirements to increase or reduce based on overall demand.
Therefore the only thing a business can do is to forecast the unknown; yet look at the present situation and base their decisions on what works now and what doesn’t, in readiness for any flux.
Are businesses therefore reserved in their recruitment drives, investing in today or investing in tomorrow’s potential? This is obviously going to be subjective to the business and their situation.
Logistics
The same focus can be said with the logistics of a business being used to transport both deliveries to the EU customers, or collect and back haul products from within the EU.
- Will fuel prices increase?
- What legislation may change on exporting?
- What increase would be felt on imports?
- Would the fleet be over capacity for the future changes or just right?
Again this is all subjective to an either way decision from the vote.
The point is that it needs to be factored in and predicted. Its back to the crystal ball and gambling on red or black.
Profits
Profitability will need to be managed as dependent on the future outcome cost prices could increase on importing products as well as the increasing fuel costs and possible changes in customs and excise through UK/EU borders.
This was highlighted recently by Sky news, in 'The Week' EU referendum: Pros and cons
Currently 50% of what we export reaches EU trade partners, yet we do not receive any tariffs on our imports or exports( source Sky News), therefore this has to be a serious piece of planning to be worked through.
If trading relationships and revenue reliance is currently high, as previously discussed, this stream potentially is at high risk, therefore Profitability would be affected if this business currently enjoyed was to be removed from a businesses balance sheet.
Strategy
This is the last area that I cover in this post, and I refer back to my article Quarter 1 In front or behind that highlights the requirements and necessity of strategic planning.
What was right for your business may well be still right for the business, but what happens if the bell rings and it’s All Change?
- Is the strategy still correct for the current period?
- What planning has been done to ensure strategic adaptability?
Whilst the overall outcome to be in or out is in the nation’s hands when they all vote, the decision of whether to be in or out is of course subjective to the voter.
There will be those businesses pleased with the outcome as much as those that will be uncertain on where it will lead.
They say that change is just adaptability, but that only works for a business if it is fluid and adaptable to change itself.
A business mindful of its destination will be planning and forecasting against all scenarios, be it that they may face change of the UK being In or Out
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Jonathan Hartley
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