35% of UK businesses forecast decline in 2019 profits

The Chartered Institute of Management Accountants (CIMA) recently conducted a survey with 1,496 UK finance professionals – involving both CFOs and Finance Directors – covering the impact Brexit will have on their businesses in 2019.

Andrew Harding, chief executive at CIMA, said: “Finance professionals have a crucial role to play in using the internal and external data at their disposal to understand how Brexit might affect their organisation, so they can prepare accordingly. However, many are having difficulty doing so due to the level of uncertainty around Brexit.”

According to CIMA’s survey, 35% of their UK businesses will be forecasting a decline in profits in 2019 due to Brexit. Furthermore, the survey has also revealed that 27% expect flat profits, whereas only 5% of those asked are expecting their 2019 profits to rise next year.  

Conversely, the majority of those who took the survey (58%) expect their business costs to increase, 49% of which believe costs will grow by 1-10%, and 10% expecting an increase of more than 10%. 42% of finance professionals who took part in CIMA’s survey have emphasised that they will be less ambitious in their 2019 revenue forecasts because of Brexit.

CIMA’s report stated: “Furthermore, 14% expect to spend more than £1m on Brexit planning, while 33% expect Brexit to have a continued impact on finances beyond 2020. 75% said they are concerned about the possibility of a no-deal Brexit, with 40% being very or extremely concerned.”

Although 77% of businesses have claimed that they have taken steps to prepare for Brexit, only 20% of those have undertaken a full risk assessment which covers each potential impact Brexit could have on their individual business, versus the economy.

Harding added: “Many UK businesses expect their finances to take a hit as a result of Brexit, but the majority have not conducted a risk assessment to identify the threats that may arise. Unless companies fully understand how Brexit will affect them, there is a strong chance that many will be caught short once the UK leaves the EU.”

The three main steps that UK businesses have taken to try and prepare fully for Brexit includes investment into automation, stockpiling of goods, and adjusting their key relationships with suppliers in a way that will befit the potential changes. However, only around 8% of businesses who took CIMA’s survey have undertaken any of these three points, thus proving that much more needs to be done ahead of March 2019.

The report highlighted how “17% [of] finance professionals said there is more pressure to analyse risk and provide advice, while 15% said there is more pressure to reduce cost. However, 20% said it is more difficult to provide strategic guidance due to the level of uncertainty.”

11% of businesses have made the decision to put their UK projects and expansion plans on hold until the outcome of Brexit is clearer. However, 8% are investing into business activity in the EU, 7% in the UK, and 5% outside of the EU.

Although these statistics released by CIMA have some cause for concern when it comes to the wariness many of UK businesses are exhibiting, as well as how the uncertainty is having a knock-on effect in how businesses can prepare, the Brexit impact seems to be focused on the short-term.

In the long-term, business outlooks may be far more optimistic – it all depends on the direction the Brexit negotiations take.