UK: Euro doomsday or heyday.

UK: Euro doomsday or heyday. - The euro - coming to a continent near you very soon - could mean great things for SMEs, that is, of course, if you've done your homework and laid your groundwork.

by Jonah Bloom.
Last Updated: 31 Aug 2010

The euro - coming to a continent near you very soon - could mean great things for SMEs, that is, of course, if you've done your homework and laid your groundwork.

There are less than 200 hundred working days before the introduction of the euro. The list of multinational firms that have said they will trade in the new European currency is growing like the European grain mountain: IBM, Philips, ICI and Mercedes to name but a few. Even our super-prudent chancellor, for whom impatience is an ugly word, has told SMEs that they should be involved in 'intensive preparation'.

It is hard to overstate the scale and implications of the change. Central Lancashire MEP Mark Hendrick says it is 'the biggest economic project the world has ever seen'. But British business and SMEs in particular appear to be paying very little attention. The frequency and findings of the 'are you ready for EMU?' surveys are almost as alarming as the scale of the change itself.

Grant Thornton, which conducted its survey in November last year, found that only 11% of European businesses have actually taken action to cope with the introduction of the euro and only 31% of UK businesses felt positive about the change; IT services group CMG's survey found that only 31% of British businesses had actually prepared for the EMU; and last month, in a survey of 151 financial directors by law firm Pinsent Curtis and Financial Director, an amazing 48% claimed they were 'not satisfied that their companies were doing all they can with regard to European issues'.

Equally astonishing, this survey also found that 20% of businesses were not even sure that EMU would commence on the 1 January 1999. But commence it will and seemingly it will catch many businesses unawares.

For every survey on the euro, there have been warnings about the pitfalls of being caught napping while your competitors are preparing for the new currency. Perhaps one of the scariest for SMEs has come from the multinationals.

As Martin Ward, senior international manager at Lloyds TSB Commercial, explains: 'SMEs are facing a risk they've never faced before. Until now, all the exchange rate risk has been held within the multinationals. But, if they're trading in euros, that risk will be passed on to their suppliers, often SMEs.

'The profiles show that most SMEs have two or three large customers and maybe 50-100 small ones,' he continues. 'If your business is one of those with a big national or international client, you might find you're suddenly dealing in two currencies. As an SME you will have to develop new skills; they'll have to be conversant in currency hedging mechanisms such as futures and options. The whole thing means new computer systems, bigger audit fees and more complex translational accounting.'

Clearly, there is a potentially massive cost for anyone either buying from or selling to a firm that is planning to move over to the euro at the start of next year. The international and big national firms may use this 'level battlefield' to address issues such as the price of raw materials, components or services, and the number of suppliers that they are using.

But, for every stick wielded threateningly over the heads of SME bosses, there is a carrot - an opportunity for long-term success. Pushing aside our famed British pessimism, the single currency could represent an opportunity to get a bigger contract with your multinational company, to extend your horizons.

As Nick Crosby, a senior management consultant at Price Waterhouse, who specialises in EMU, points out: 'The costs of going international will be drastically reduced. The European single market will be your domestic market.'

Assuming Britain enters EMU some time in the next parliamentary term, shrewd bosses will be able to take advantage of complete price transparency.

Short term, there may be some major costs involved but, in the long term, there are enormous potential benefits for SMEs.

'The complications of trading in another currency will disappear,' says Stephen Dexter, Grant Thornton partner and SME spokesperson. 'I think British businesses will fare quite well. The social chapter is a major constraint in Europe. Social security costs are much higher on the continent.

We should be more nimble, more flexible, with lower costs.'

Naturally, most SMEs don't have cash to burn but Grant Phillips, director of euro programme communications and training at Barclays, is 'deeply worried' by the results of a Barclays survey, which suggests that nearly a quarter of the businesses surveyed believe that preparing for the euro will cost them nothing.

As Ward points out, taking advantage of the level playing field will require a lot of capital. But EMU may well make it easier to raise capital.

SMEs, many of which currently rely on the high street banks for finance, will be able to use an increasingly liquid financial market. 'At the moment, there aren't many products available from the financial markets that are suitable for small businesses but, if everything is aggregated in one market (a harmonised European Stock Exchange), it will be more worthwhile for the financiers to offer these products,' explains Crosby. 'In addition, there will be more capital coming into the markets as people are forced to look at private rather than state pensions. There will be a new demand for these markets and a good supply of capital.'

Analysts hope privatisations in Europe will also fuel the markets. And, at the last meeting of Ecofin, the European financial summit, prime minister Tony Blair said he expected EMU to offer a spur to venture capitalists as well. The future for SMEs looking to finance a move into Europe looks quite rosy from this perspective. Equally, there will also be an opportunity for every business in Europe to benchmark itself against its competitors according to the price of its products. British businesses will no longer have to fear the country's poor inflation record.

Of course, adapting to the euro is not merely a financial and IT issue.

Ward believes there will be a shortage of sales and marketing people with the necessary skills to push into Europe. 'The price points issue is going to be a big one for the sales and marketing people,' he adds. 'The product you sold for 9,999 in one currency may cost 10,560 euros. How will the marketers tackle that one?' Will prices be pushed up or, as many suspect, be rounded down? Will it affect product size? The answer will probably depend on the competitiveness of each sector.

The introduction of the euro, whenever it comes, will be a massive cultural change. In other countries, the European Commission is running advertising campaigns to heighten awareness of the imminent single currency but the British Government has decided against any such campaign at this stage.

Nevertheless, firms such as accountants Kidsons Impey are, according to partner Peter Sills, doing all they can to inform all their clients: 'We should act, whatever the Government says.' Other organisations are doing the same. Barclays Bank has even launched a new section to its web site, dedicated to the euro issue. But inevitably, the machinations in Maastricht seem a long way from the day-to-day running of a business now, on 1 January next year, or on Britain's subsequent entry into EMU. Preparation and investment in the short term should pay dividends for healthy SMEs prepared to accept the challenge of a level European battlefield. 'Once more unto the breach.'


Peter Sills at Kidsons Impey recommends that SMEs consider the following: Look at the different ways in which you and your business could be affected by the introduction of the euro and draw up a checklist of necessary action.

It would be wise to behave as if the UK is joining EMU from the outset - you still need to be prepared.

Will preparation for the euro mean additional resources? You may need to revise your budgets. For example, if you are a retailer, you may need to buy extra or replacement tills to deal with dual currency transactions.

Check whether your computer systems and software will need upgrading or replacing in order to deal with dual-currency transactions and/or single European currency.

Consider any additional staff training needed and what this will cost the business.

Assess the impact of dual pricing/trading. Bar coding and labelling will need to show dual currency and, if applicable, you will need to draw up new price lists to show costs to your customers and/or suppliers in sterling and euro.

Invoicing arrangements will also need to be reviewed.

Will you round your prices up or down and what are your competitors doing?

If you currently trade overseas, there are contractual issues that may need to be addressed as we approach the first wave of economic and monetary union. However, by law, contracts entered into before the euro's introduction must be honoured.

What will you do about statements for staff salaries, pensions etc?

Even if you are not conducting business in euros, they may well be buying goods and services in euros and will want to be able to compare their income to all, not just part, of their expenditure.

Have you and your accountants decided whether and how dual currency company accounts should be prepared?

When will you convert to euro? Decide upon the timetable for your business to convert and whether it will be an instant measure or phased in.

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