With just one day to go before the UK decides whether or not it will break ties with the European Union (EU), its corporates must consider their contingency plans very carefully. With the headlines and polls suggesting that the final result is too close to call, it is crucial that businesses in the UK consider how the outcome will impact them and begin to plan for either eventuality.
Of the two possible scenarios, a vote for Brexit would clearly have the most far-reaching repercussions for corporates – both in the UK and further afield. Having said that, the truth is that no- one can actually be certain of exactly what the implications will be for businesses if a Brexit takes place.
Business in the UK has been shrouded in an air of uncertainty as the vote has moved ever closer, and this looks set to remain long after the results are announced. With the short-term impact of both a ‘Remain’ and ‘Leave’ vote hard to assess, now is the time for chief financial officers (CFOs) to re-consider the effect that a vote to leave the EU could have on their business – and how they will need to react in the days, weeks and months that follow.
The time is nigh
Most CFOs have been considering their contingency plans for quite some time, which means that they have at least some idea of what leaving the EU could mean for their business. As such, all financial teams should have a Plan A that is flexible and adaptable to either outcome. However, any Plan A can only take the company so far. Now is the time for CFOs, financial directors and corporate treasurers to be reviewing their Plan B and ensure it can cope with the practical changes that a Brexit could bring.
When considering Plan B, financial teams need to be looking at all the different areas of the business that could be affected. For a larger organisation, or indeed any company that has a global or European dimension, CFOs will need to model the impact of a Brexit on their subsidiaries. Of course, income streams will also be impacted by the split, as will exchange rates.
Leading up to the vote, there has been a huge amount of fluctuation in the value of sterling. This is, of course, to be expected as peaks and troughs in markets and foreign exchange (FX) at times of economic uncertainty is not unusual. That said, exchange rates are likely to become even more volatile should the UK break away from the EU, which means that CFOs will need to factor this into their forward planning.
Another important consideration for financial teams will be the large-scale changes that are expected in compliance requirements and costs. If the UK votes tomorrow to leave the EU, there will be an extended period of uncertainty as the country negotiates its position with the remaining EU countries. For example, regulations that were imposed on businesses by the EU could be removed and new ones put in place.
Adapting Plan B to Plan A
If a financial team has been banking on one clear outcome being more likely the other, a Plan B needs to be worked on urgently. More than anything else, the EU referendum has highlighted the need for financial teams to have powerful, agile planning systems that can re-model forecasts and plans rapidly and allow for many scenarios to be run. Not only will this increase the organisation’s insight and intelligence in broad terms, it will also enable the business to react much more quickly following the vote.
This is especially true for larger corporate organisations, whose planning systems are often outdated and unable to keep up with today’s fast pace of change. By ensuring that Plan A and Plan B have been extensively modelled, however, the finance function can quickly support the businesses effectively, whatever the result.
Looking to the future
As the hours count down to the final vote, all of the hype around a possible Brexit has reached fever pitch. Most recent polls suggest that the Remain campaign has recovered some lost momentum, but nothing is set in stone.
While no one can say for certain what will happen to UK businesses if voters decide to leave the EU, a number of repercussions are almost certain. For a start, the markets and FX will continue to be highly unsettled as the UK begins the long process of negotiating its place in terms of trade.
Even now, in these final moments, financial directors will need to keep planning and re-planning for all possible outcomes, using tools that are both flexible and agile. Regardless of the outcome, this kind of planning will be essential in order to cope with the fluctuating markets and economic uncertainty that is expected following the vote.
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