Managing risk and Brexit - How to avoid getting caught out
In a piece of highly original thinking, I thought for this week's post, I would look at something that has already had a lot of coverage in the media - That's right, "Brexit"! Please bear with me on this one....
The official campaigns only started last week and by the time 23rd June approaches, you will have long decided how you will be voting and will be thoroughly bored of everyone talking about it ad nauseam. It is inevitable that the rhetoric for both campaigns will become increasingly focused on stats that show the negative implications of either outcome and the fear will be cranked up to eleven. We all know the expression "lies, damned lies and statistics".
This therefore seems like a good point to highlight what you might need to consider from a business perspective and what if any action you should take.
It is important to note that the name Brexit is slightly misleading, as ultimately whether we are in or out of the EU, we are still going to be very close to Europe, from a geographical sense and a political one. Europe is the largest trading block in the world and our largest trading partner, so it is an inescapable fact that in a globalised world, our fortunes are very closely linked and particularly to those of our closest neighbours.
What is clear is that a vote to leave certainly doesn't mean the end of the world for the UK, but we can't expect the UK is going to get a better deal being outside of the European club, rather than having an important voice inside. This seems to boil down to a vote on public spending and how we use our resources - i.e should we spend our net contribution to the EU on issues closer to home?
It therefore got me thinking about how business and what could an entrepreneur do to mitigate some of the risks.
What can entrepreneurs do to avoid being caught out?
From the 14th to the 18th century, European trading was a risky business with war, weather and other unexpected outcomes often preventing individual merchants from making a profit - often an entire cargo would disappear without trace. This is how stocks came about - to mitigate risk to individuals by sharing their risk with others, should an endeavour fail. It was also the reason Henry VIII established a permanent Royal Navy.
It seems clear to me that it is a good time to look at mitigating risks and carrying out some "stress testing" of your own. It raises an important question - In business, how do entrepreneurs assess risks that are outside of their control?
All businesses have a plan of some sort, whether it is written down or not. You know your business better than anyone, so it is worth considering how the way you do business today might be disrupted by a Britain that is no longer in the EU. The same applies to any other business risk and this could include any of the following factors:
- How would your customers be effected and what might they do differently?
- How long are your commercial contracts and how easily can a client change provider for an alternative?
- Do you deal in multiple currencies and is this managed effectively?
- What regulations does your business have to abide by and how might these change?
- How easy would it be to re-engineer your business?
- Do you have sufficient access to capital should you need to change your business model?
- Is your business diversified enough if you lost your biggest client?
You should also talk to your trusted business connections outside, as well as people within your business, as you may have very specific challenges.
With a clear picture of the answers to the above, you can therefore understand what you would need to do to manage any change and the uncertainty that leaving the EU would inevitably cause.
Making better decisions in business is about confidence and you can only be confident if you understand how your business could be affected in any situation.