The United Kingdom voted to leave the European Union on June 23rd and we’ve heard all about the impact on International stock markets, multi-conglomerates, worldwide economies and not very much about the little guys – small businesses.
Much doom and gloom has surrounded the Brexit vote, primarily due to the multitude of legal and financial uncertainties. There is no doubt that the UK leaving the EU carries risks, but counteracting those risks are an equal amount of opportunities.
This blog will explore the influence of the Brexit vote on an SME in the IT sector offering Cisco Professional Services. We will objectively explore any negative and positive impact the Brexit vote has had on our company, our finances and business operations.
As a Cisco Professional Services organisation, 4CornerNetworks specialise in the provision of Cisco Engineers making our business model dependent on market prices in the recruitment of Cisco Engineers. We operate Internationally, often employing Engineers from the EU and USA where the performance of the Pound Sterling causes both negative and positive currency fluctuations.
Post Brexit vote in the UK caused major currency fluctuations on the Pound Sterling against the US Dollar and Euro. Let’s look at the currency fluctuations of the Pound Sterling vs the US Dollar and the Euro from June 23rd, the day of the Brexit vote.
£ Pound Sterling to the $ US Dollar
$1.48 to £1 23/06/2016
$1.33 to £1 03/08/2016
$1.29 to £1 08/07/2016 = 28.12% fluctuation from 23/06/2016
The pound reached its lowest point on 8th July trading at $1.29 to £1 and its highest point of $1.48 to £1 on the 23rd June resulting in a 28.12% fluctuation. Today the price is $1.33 to £1 where the fluctuation from 23rd June is 22.2%.
£ Pound Sterling to the € Euro
€1.30 to £1 23/06/2016
€1.19 to £1 03/08/2016
€1.16 to £1 06/07/2016 = 18.2% fluctuation from 23/06/2016
On June 23rd the Pound fluctuated by 14.3% against the Euro against today’s price of €1.19, and reached a low of €1.16 to £1 on July 6th resulting in a 18.2% fluctuation.
Price of Doing Business
The average salary of a CCNA in USA is $72,039. At the current exchange rate of $1.33 to £1 is £54,165. On 23rd June the exchange rate was $1.48 to £1 meaning the same CCNA Engineer would cost £48,675 which is a cost of £5,490 for the salary of a single Engineer. (source: http://www.payscale.com/research/US/Certification=Cisco_Certified_Network_Associate_(CCNA)/Salary )
A CCNA in Europe (Take Germany as an example) earns an average salary of €45,562. At the current rate of exchange €1.19 to £1 is £38,287. On 23rd June the exchange rate was €1.30 to £1 meaning the same CCNA Engineer would cost £35,047 which is a cost of £3,240 for the salary of a single Engineer (source: http://www.payscale.com/research/DE/Certification=Cisco_Certified_Network_Associate_(CCNA)/Salary )
However, fortunes are reversed when we receive payment from organisations in Europe or USA. If an invoice for $10,000 was received on 23rd June, this would have been worth £6,757 but the same $10,000 invoice today would be worth £7,519, a surplus of £762.
A €10,000 invoice on 23rd June would have been worth £7,692 but the same €10,000 invoice today would be worth £8,403, a surplus of £711.
The currency fluctuations can be equally negative as they are positive which results in the solidification of uncertainty and therefore a cautious approach must be taken when dealing with international clients, currencies and projects. Operating in volatile market conditions is a business challenge we must accept face on, but remain equally cautious.
Any International growth ambitions small businesses have must now be placed on hold, but for how long? Planning to set up new offices, employ new staff and trade internationally with multiple currencies fluctuating by up to 30% in a matter of weeks presents too many unknowns and a period of stability must be reached before the UK’s small businesses can shake off the shackles and grow. It all depends if you see the glass Half Full or Half Empty?
*Please note the rate of exchange is at 03/08/2016 and will vary