Comment: How SMEs can prepare for Brexit

There are approximately 365,000 small and medium-sized enterprises (SMEs) operating in Scotland, providing around 1.2 million jobs. Many of those businesses have been established in the last ten years as a direct consequence of former employees being made redundant during the recession, or by those who have taken early retirement and set up lifestyle businesses which sit within the gig economy. These, together with more traditional small enterprises, such as small-scale construction companies or food producers, account for 99 per cent of all private sector enterprises.

Small businesses must safeguard themselves against uncertainty, says Iain Young, partner and head of corporate law at Morton Fraser. Picture: Contributed

But smaller Scottish enterprises are finding their growth potential limited in these uncertain times. The major issue causing concern in the business community at present is, of course, the uncertainty around Brexit, knock-on effects of which include:

- A reduction in the number of workers from EU member states continuing to work in Scotland. These will need to be replaced, in the short-term, by indigenous UK workers but longer-term perhaps by immigrants from non-EU countries, which may distort the wages market.

- Certain parts of the UK tax system are currently subject to controls imposed by Brussels, which will cease to apply. Will different VAT rates be introduced for different categories of goods?

- It seems likely that most Scots firms will cease to be part of the EU’s single economic market, meaning customs and tariffs will apply to imports and exports. For Scottish manufacturers and exporters, this is likely to result in increased costs and the challenge is the extent to which these are passed on to the end consumer.

- Many current business regulations derive from the EU and these will have to be replaced. Regulators must ensure that businesses do not get so wrapped up in red tape that it limits their ability to operate effectively.

- Although the economic effects of Brexit are hard to predict, the general consensus is that there will be an immediate detrimental effect to the UK economy. Factors which will need to be considered include the chances of a currency devaluation, inflation caused by a lower value currency and potential increases in interest rates to curb rising inflation. The duration of these economic conditions depends largely upon how quickly trade agreements can be made to replace the shortfall in trade which currently exists between the UK and EU member states.

Small and early-stage firms wishing to make the jump to the next level of growth should be mindful of this and take measures to safeguard themselves against the uncertainty of the current economic climate.

- Iain Young, partner and head of corporate law at Morton Fraser