As stocks and currency values responded to the vote of the United Kingdom (UK) to leave the European Union (EU), businesses of all sizes began expressing concerns about the impact of the vote on their businesses. While the effects of the vote are uncertain, making it difficult to plan ahead for changes, CPAs will be in demand to assist clients with new developments as they occur. Although unpredictability makes it difficult to plan for all changes, below are some considerations for CPAs to discuss with clients who have business relationships in the UK and who may be impacted by Brexit.
Considerations for clients purchasing goods or services from the UK:
- EU citizens currently living and working in the UK are, understandably, wondering whether they will be allowed to continue to do so. If these employees leave the UK, there could be a disruption in operations.
- Financial services firms located in the UK may consider moving to countries that remain in the EU, potentially affecting clients’ current agreements with these firms.
- Changes in trade agreements may cause more difficult trade or an increase in tariffs for UK businesses. The changes may result in additional costs which could ultimately be pushed down to your clients.
- Businesses may need to incorporate new monetary and fiscal policies in their operations. These changes may influence a business’s interest rates and taxes, leading to a possibility of increased costs of goods and services purchased from suppliers in the UK.
Considerations for clients selling goods or services to the UK:
- US exports may decrease due to a strong US dollar and decreased value of the pound, making goods and services more expensive overseas.
- Uncertainty may lead to less venture capital interest in and less incentive for businesses to enter the UK, possibly limiting new business opportunities.
- Large companies are reviewing their current investments in the UK to determine if they will maintain or divest these investments, resulting in additional volatility in the UK economy.
CPAs can use this opportunity to assist clients with risk management concerns, by alerting clients to the potential impact of the above considerations and helping them consider ways to respond. Planning for various potential scenarios will provide clients with the best options to be prepared for numerous outcomes. Planning considerations include:
- Hedging options such as forward contracts for short-term currency risks;
- Conducting business only in US dollars;
- Assessing pricing more frequently to mitigate or avoid short term risks of currency exchange rates;
- Focusing business on multiple regions, avoiding dependency on any one specific location.