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Contingency planning now, could save your business tomorrow

It’s time to face facts, the Northern Ireland (NI) 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 NI 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 NI as a result? 

NI businesses have had a tough 10 years. Many have struggled over this period, simply keeping their heads above water being their primary objective. Typically these business 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 NI businesses entering insolvency processes. 

In addition, consumer borrowing is not sustainable. Recent statistics showed an average household in NI 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 NI businesses.  

Another key challenge will be our border in a post-Brexit world. Our future trade relationships with Europe will be key for NI businesses. The vast majority of NI businesses have some trade with the Republic of Ireland (RoI) 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 NI. Now more than ever NI businesses need a local voice, a body with the legislative authority to lobby for what NI businesses need, especially given our unique position of having a land border with the RoI.

It is a cliché, but the only thing NI businesses can be certain of over the next few years will be uncertainty, therefore now is the time for NI businesses to act. They need to prepare for the above 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.