Brexit breeds caution as businesses hold back on investment decisions

Coping with the fall-out will require growth – but companies are reluctant to seek investment.

By Shane O'Hanlon InterTradeIreland

Brexit – the word has managed to dominate both the political and business landscape for the past three years and for many companies.

Coping with the fall-out will require growth, but why are so many companies reluctant to take the plunge and seek investment?

It doesn’t take a genius to point out that businesses are more cautious given the current economic uncertainty. Understandably businesses are opting to hold back until the terms of the new trading relationship with Britain and the EU become clear.

Negative impact

InterTradeIreland’s quarterly All-Island Business Monitor (AIBM), which covers business owner’s views from both Northern Ireland and Ireland, found that 31% of the companies surveyed said Brexit is having a negative impact on investment decisions.

Potential expansion, acquisitions, or investment in machinery are all areas affected as businesses delay signing on the dotted line.

A mere 4% of firms are planning on investing in R&D or new product development, while just 11% said they planned to invest in staff training – all factors which influence angel investment.

Angel investors think in the same way as SMEs – they want to see a return on investment. If Brexit has slowed down business decisions, it’s natural for that to be reflected in an investor’s approach, especially to a business that may be heavily exposed to Brexit.

Poll results from our 2019 Venture Capital Conference found that investor readiness was a key challenge for 46% of those surveyed while 38% cited a lack of access to suitable investors or funds as a hurdle.

Companies need to address what the source of this obstacle is – is it their business plan, their investment pitch or a lack of contacts, for example? 

SMEs should research what accelerator and business support programmes or other assistance is available.

There are so many programmes out there, which provide consultancy on business plans, financials, support sales and marketing, and can signpost businesses to the investors, which can be an uphill battle when doing it alone.

No one expects business owners to know it all when it comes to developing their business. This is where enterprise programmes come in – to advise and support companies to develop an investor-ready business strategy.

Looming deadline

With the next Brexit deadline just months away, firms not only need to prepare for its short-term impact but also should be planning a longer-term strategy to build their business.

From InterTradeIreland’s equity clinics, we know that businesses tend to focus on product and services for the majority of their business plan and leave themselves exposed in other key areas.

Investors want to see a process so this should be central to a business strategy. A business plan needs to provide insight into the market, especially the global market and the potential for export. It needs to include information on route to market – define if your business is going to be B2B, B2C, or if you are going through an agent.

And of course, a business could have great potential, but that could mean very little if financials are not in order. This is an area that many owners we encounter struggle with and is it a vital component of a business strategy as it determines whether or not a company is viable.

Entrepreneurs need to be able to confidently know their worth, their growth potential and understand their business and operating costs.

Our research reveals that cash flow has been proven to be an issue for 32% of firms on the island. While rising costs is a concern for over a third, 36%, of small businesses.

Those statistics indicate that those who wish to pursue a growth strategy will need to be well prepared and fully armed with solid equity advice no matter the outcome of Brexit.

Shane O’Hanlon is the funding for growth manager at InterTradeIreland.

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