Contingency planning now could end up saving your business tomorrow
It's time to face facts - the Northern Ireland economy is at a crossroads. The key drivers that dictate whether our economy stagnates or grows have never been so volatile. Even prior to the results of the Brexit referendum, the Northern Ireland economy was not on solid ground. It was heavily unbalanced, with far too much reliance on our crippled public sector and unsustainable consumer borrowing.
So, what are the challenges facing businesses in Northern Ireland as a result?
Businesses have had a tough 10 years. Many have struggled over this period, with simply keeping their heads above water being their primary objective.
Typically, these businesses are servicing pre-2007 bank debt in an interest-only capacity. Record low interest rates have allowed this to occur for such a prolonged period.
Should interest rates rise to normalised levels (the Bank of England base rate, and predecessors in name, averaged 4.6% since 1990), these businesses will likely be unable to meet their new interest repayment requirements and thus default on their loans.
This will lead to an increase in Northern Ireland businesses entering insolvency processes.
In addition, consumer borrowing is not sustainable. Recent statistics showed an average household in Northern Ireland owes £13,000 of unsecured debt. This is unsustainable for an economy where the average salary is £18,000. This growth in consumer borrowing has been fuelled by the availability of cheap credit, driven by record low interest rates. If interest rates rise, so will monthly repayment levels and consumers will have less disposable income available to spend in Northern Ireland businesses.
Another key challenge will be our border in a post-Brexit world. Our future trade relationships with Europe will be key for Northern Ireland businesses.
The vast majority have some trade with the Republic of Ireland or wider Europe.
Our importers have seen costs rise by at least 10% post-referendum - when margins are already tight, this additional cost can be crippling. Yes, our exporters have benefited from the weakness of sterling and are now 10% more attractive from a cost point of view to their customers; however, this is with a tariff-free border. How sustainable would this advantage be if customs controls and border tariffs are introduced?
The final contributing factor to the challenges of Brexit is the dysfunctional political environment within Northern Ireland.
Now more than ever, Northern Ireland businesses need a local voice, a body with the legislative authority to lobby for what businesses need, especially given our unique position of having a land border with the Republic of Ireland.
It is a cliché, but the only thing Northern Ireland businesses can be certain of over the next few years will be uncertainty, therefore now is the time for businesses to act.
They need to prepare for the aforementioned eventualities, take an honest and hard look at their business model and consider what they need to do to survive over the next few years.
Contingency planning now, could save your business tomorrow.
For further information or advice, Ian Davison can be contacted at email@example.com Grant Thornton (NI) LLP specialises in audit, tax and advisory services