A no deal Brexit may have a number of implications for your business in terms of banking and cash flow. It might be that you need to hold more stock, or that currency volatility leads to fluctuations in the cost of importing and exporting goods. We’ve looked at the key issues and given some tips on how to prepare for no deal.
What should we be doing during the transition period to understand the impact on our cash flow due to larger inbound and outbound inventories if there is a no deal scenario?
Consider how your business will be funded if more cash is tied up in working capital due to holding additional stock. For example, you may want to explore a working capital loan, an overdraft or asset based financing of receivables or inventory.
Should we be reviewing existing financing arrangements?
Yes, check for flexibility to amend facilities and/or incur more debt. Market volatility could affect your ability to meet financial covenants in loan agreements or facilities. Is there a risk of default? Speak to your lender.
What impact could currency volatility have on my business?
Currency volatility can have positive and negative impacts. Weak sterling could help you to compete with an international supplier, leading to an increase in exports. On the other hand, if you’re selling goods globally, weak sterling means that it costs more to sell goods. In terms of importing, when sterling is strong, you’ll get more for your money and when it is weak, less for your money.
What should we do to reduce the impact of currency volatility?
There are a number of ways to reduce the impact of currency volatility.
You could consider:
- Hedging strategy
- Reviewing your foreign currency payables and receivables
- Opening a bank account in the country you import goods from.
Do we need to restructure or refinance our business following coronavirus and in preparation for Brexit?
Consider your supply chain and the demand for goods. Consider asking for payment on delivery, and maintain good credit-control. Think about opening a bank account in the country you import goods from. You may even want to relocate your head office or set up a subsidiary in Europe.
Be aware of the latest financial position of your business and the daily cash flow position. Consider whether you may default on any existing finance arrangements. It's important to speak to your lender about any concerns. Review government support measures which have been made available to UK businesses during the COVID-19 pandemic and consider whether your business may be eligible.
What duties should Directors be aware of if the solvency of a business is in doubt?
Directors should be mindful of their legal duties and seek professional advice if the solvency of the business is in doubt. If there’s a risk of insolvency, shift to acting in the best interests of the creditors, rather than the best interests of the shareholders. Ensure you don’t fall foul of the law around wrongful trading (after the temporary suspension) and/or fraudulent trading.
Be aware of the restructuring measures in the Corporate Insolvency and Governance Act, such as the new restructuring plan, which has been introduced to support viable companies struggling with debt obligations to enter into an arrangement with their creditors.
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