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Brexit: Three key implications for CFOs

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Liquidity

The EU referendum result could result in higher funding costs for UK corporates as funders re-evaluate credit risk and may seek to pass on their increased costs of capital.

Corporates should identify the key actions (such as deferring unnecessary spending, maximising sources of liquidity and managing working capital) which they can call upon to preserve value during this potentially turbulent period, explains Ian Green, business recovery services leader at PwC.

Careful planning and strong communication with key stakeholders such as employees, customers, suppliers and funders will also be critical, he adds.

“Clients should also take the time to assess how the outcome of any negotiation to leave may impact their business model and what that means in practice, as well as the impact on their portfolio of assets and future growth prospects,” says Green.

Global mobility and employment

In the immediate aftermath of the result, employers will need to concentrate on reviewing the implications for their workforce and then communicating with their employees.

Employers are used to EU employees currently having the right to live and work across the EU without restrictions and applying EU regulations on social security coverage and benefits to EU mobile workers.

“Employers need to be prepared that these rules may not be in place after leaving the EU and be ready to address specific employee queries on the position throughout the exit negotiations as well as assess the cost implications for the business,” says Ben Wilkins, partner at PwC.

Economics

The UK leaving the EU could potentially disrupt trade relationships with our most important and nearest trading partner and creating uncertainty for financial markets and business in general.

“It will be very important for the government to act quickly to resolve the inevitable uncertainty. The EU is a vital market for exporters so it will be important that we secure access to that market in any future settlement with the EU,” says Andrew Sentance, senior economic adviser at PwC.

Sentence, a former member of the Bank of England’s Monetary Policy Committee, expects that most businesses in the UK want us to keep a close and positive relationship with the EU even if we are not a full member.

“That could be done by remaining a member of the European Economic Area, or by securing our own specific trade relationship like Switzerland – though this second route is likely to take much longer and be more difficult to negotiate.

“It is important to keep things in perspective, but in the short-term, we need to brace ourselves for more volatility. The final polls yesterday were pointing to Remain and this was the general expectation of financial markets. This potential shock could hit the pound and stock markets badly, and push up the cost of borrowing because of the additional political risk.

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