Four in 10 SMEs in the UK fear they will go out of business within one year of a ‘no deal’ Brexit: German firms in the UK also feeling the heat

Four in 10 SMEs in the UK fear they will go out of business within one year of a ‘no deal’ Brexit, according to a national survey carried out this month by SME landlord M7 Real Estate.

Such is the chaos surrounding Brexit that 32% of the 1,084 companies surveyed said they are even considering closing their company as a result. Nearly two-thirds (63%) of SMEs predict that they may not survive for more than five years if they take no action in the event of a ‘no-deal’ departure, with there being a clear personal preference (54%) for remaining in the EU under the terms of the UK’s original relationship.

The UK moved closer to crashing out of the EU without a deal yesterday (12 March) when MPs defeated Prime Minister Theresa May’s much derided deal by 149 votes.

‘These robust statistics underscore the serious anxieties that exist across the SME community at large, about the threatening impact of a no-deal Brexit,’ said Richard Croft, chief executive of M7 Real Estate. ‘With potentially significant consequences for our vital 3,618 UK commercial tenants, these figures reveal a significant absence of appropriate Government ‘no-deal’ communication, leaving many SMEs in a continued state of ambiguity. This latest data further confirms the highly uncertain impact that a no-deal Brexit will have on the turbo-engines of the UK’s economy.’

The SME leaders surveyed represent a gross total of £7.491b in turnover from over the last 12 months and directly employ a gross total of 100,537 full-time staff. According to the National Federation of Self Employed & Small Businesses, the combined UK annual turnover for SMEs at large in the economy was £2 trn 2018 (52% of all private sector turnover), with SMEs employing 16.3 million people, which equates to 60% of all private sector employment in the UK.

 ‘We commissioned this independent national research as one of the UK’s largest SME landlords having continually heard feedback from our tenant base that they feel their concerns are not being listened to,’ said Croft. ‘The results bear that sentiment out and highlight the perceived recklessness of moving to a WTO / no-deal Brexit amongst the SME community which is a hugely important generator of employment across the whole UK.’

German SMEs also under pressure

German SMEs in the UK are also feeling the heat. One such firm is manufacturer of pre-fabricated bathrooms for the luxury UK market, Deba Badsysteme. The firm, one of the 3.3m small to medium-sized, often family-run, companies which make up the backbone of the German economy, generates 70% of its turnover in the UK, mainly in London, since it entered the UK market eight years ago. Based in Salzwedel, Saxony-Anhalt, it now has an annual turnover of €25m and employs around 180 staff in Germany and 50 in Poland. CEO Dietrich von Gruben has said he is ‘anxious’ about what Brexit will mean for business and admitted that his firm is also looking at the possibility of doing more business in other EU markets to compensate.

Understandably, some companies are looking to relocate some, or all, of their UK-based business elsewhere. Indeed, a report from the British Chamber of Commerce last year found that one in five businesses say that in a ‘no deal’ scenario, they would move part or all their business to the EU27. Germany, as the powerhouse of Europe, is often their first choice. In fact, Frankfurt’s economic development organisation, FrankfurtRheinMain, has been operating a Brexit business pitch to try and lure UK companies.

In December, as a response to Brexit, the German Bundestag and Bundesrat passed the ‘Fourth Act to Amend the Transformation Act’, which will make it possible for companies in UK legal form that maintain their registered office in Germany to perform a cross-border merger into a commercial partnership under German law in the future. Options include not only a conversion into a German GmbH but also into a German UG & Co. KG, which enjoys the advantage of only minimal minimum capital having to be raised. There are estimated to be between 8,000 and 10,000 companies domiciled in Germany as UK limited companies alone, all of whom could benefit from the Act.

M7 Real Estate survey: key findings

• Just 1 in 10 (11%) SMEs believe a hard Brexit is in the best interests of their company, with 58% concerned about the impact on a ‘no-deal’ on their turnover.
• 59% are not fully prepared to leave the EU without a deal.
• 43% are expecting a negotiated agreement to pass at the end of March 2019, 23% think the UK will revert to the original relationship, 19% foresee a ‘no-deal’, while 15% believe negotiations will continue and Brexit will be postponed.
• 68% of SMEs support a second referendum. If given the choice: 43% would vote for the original relationship, 35% for a negotiated agreement, 15% for no-deal and 7% wouldn’t vote.
• 6 in 10 do not feel fully informed about the potential impact on their employees (62%), clients/customers (63%) or their supply chain, (62%), with 46% claiming they haven’t received communication from the UK Government to prepare their business for a ‘no-deal’.
• SME leaders rated the UK Government’s negotiations as: ‘brilliant’ (12%), ‘good (23%), ‘average’ (26%), ‘poor’ (18%) or ‘pathetic’ (21%).
• One-fifth (18%) of SME leaders also stated that they would vote for a ‘new centrist party’ if there was such an option in the next UK General Election.
• SMEs in London are more under threat of closure within one year if they take no action (51%), than those outside the capital (43%).