We have just published an ICAEW report on The Impact of the Eurozone Crisis on UK Business. While this is a survey of our members based here in Britain the lessons apply to businesses across the Eurozone.
At present most UK companies have no contingency plans for further economic difficulties in Europe. In fact, of those businesses who deal with Eurozone* countries and feel that sovereign debt will affect their business, 52% haven’t taken any precautionary steps.
It’s a well coined phrase but those who fail to plan, plan to fail. Businesses across the Eurozone should be thinking now about what they can do to bolster their positions.
According to our research the top five actions being taken by UK businesses are: building cash reserves (23%); converting cash reserves back from euros to £ or $ (19%); reducing number of staff (15%); looking at an exit strategy from Eurozone countries (11%) and selling assets in Eurozone countries (11%).
Of course, Europe has been the main overseas market in the UK for some time and it is likely to remain the main export market for the foreseeable future.
My advice to businesses would be to match overseas assets against the denominated debt associated with that country to reduce their liability should that country convert to a weaker new currency. They should also assess the financial strength of their customers and their ability to withstand potential currency changes.
I think it would also be advisable for businesses to look at key international suppliers and offer them prompt payment; reduced credit terms or supplier finance schemes in times of difficulty. Alternatively they could also consider buying in extra stock.
Finally, all businesses should be running stressed scenarios on the business plan to ensure that they can survive potential economic difficulties if problems in Eurozone countries persist.