MB = Marcus Broix
ES = Ed Surman
LD = Louis Duncan
MB: Making your business more resilient to economic changes so first step would be to check out all your legal requirements so you need to check IP protection, data protection so GDPR and all the contracts you have with suppliers, etc just to make sure that you’re working from a good legal base.
ES: This week I talk with Marcus Broix about setting up EU subsidiaries in operations post Brexit. We talk about the general SME business news, things to look out for in 2020 and we’ll be providing updates from Mushroom and our team too.
ES: Marcus, welcome. You’ve been living in the UK since 1980’s?
MB: Since 1980’s, on and off though.
ES: Pre cold war. Pre Berlin wall I’m sorry (laughs).
MB: Pre first world war (laughs). Yes before the war.
ES: So technically you’re a vessie?
MB: Yes I’m a vessie.
ES: One thing we haven’t established yet is Marcus, you’re also German.
MB: I am German. I’m from Dusseldorf originally. So I came to the UK first in mid 80’s and have been living here on and off throughout so I now live and work in the UK and run my own company, Trade With Europe.
ES: So Trade With Europe helps UK companies trade in the EU, which is obviously quite topical at the moment.
MB: And that’s basically the purpose of the whole company. So in 2016 my wife and I sat there by the TV to see what the outcome of the Brexit boat was and we were quite surprised as I imagine a lot of people were. And we thought well it is what it is now and then we thought, hold on, that means a lot of UK companies might want some services that allows them less frictionless trade in Europe in the future. And since we had a business in Dusseldorf for 20 years, typical SME with 20 people, we thought we know a lot, we have good contacts so we should be able to supply some services for them. It took us about a year in order to formulate these services into solutions and make the relevant contracts with partners on the continent and we established the company in 2017.
ES: We’re doing this interview in November, and there’s a strategic reason for that. We did elude to the Brexit vote. Obviously this isn’t a podcast about Brexit but it is going to come up because it’s very relevant and there’s a very clear need for what you provide. But we did also work on the anticipation that maybe the Withdrawal Agreement might’ve been signed because there was a new deal, it passed a 2nd reading in parliament so we thought we could talk about the future rather than the uncertainty. So I guess you don’t have any view on what might happen?
MB: Obviously 12th December, we’ll know more. One of three things can happen: Either we have a hung parliament again, or Boris loses which would mean another referendum or we would evoke Article 50 straight away, or if Boris wins he said he’ll get his deal through on the 13th. What I could do is talk about what the deal actually means but from experience I know that business people don’t know what it means and they don’t really know what May’s deal means.
ES: I think that’s really important. The problem even with podcasting, is there’s so much stuff on Brexit at the moment and it’s very politically charged so would be good is to go through the details. The May’s deal is kind of irrelevant but the Boris Johnson deal, is there any trapdoors or things we need to look at? From what I understand there is more likely to be regulated divergence later down the line, so we should definitely go over that as a scenario. So what things are coming out of the Boris Johnson deal do you think we should be aware of?
MB: So in general people say that Boris’ deal is 95% of May’s deal which is true however these 5% of changes are crucial. It means that his deal is a lot closer to no deal in terms of effects for UK businesses. Nothing will change until the end of 2020 because this is how long the transition period takes, and the changes will happen from 2021. But then we have the difference, because with May’s deal the UK would’ve stayed in the customs union whereas in Johnson’s deal it doesn’t. Which means for businesses, they have to pay tariffs straight away and they also have to do the full customs declaration, if nothing happens after 2020. So if it’s Johnson’s deal by the end of 2020. By 1.1.21. UK businesses have to pay full tariffs and for any exports they have to do the full customs declarations also.
ES: And that’s also in the case that a free trade agreement doesn’t get signed at the end of the 2020 transition period? Which is highly unlikely.
MB: It is 99.9% unlikely. It will not happen. Article 50 has 5 paragraphs of which 2/3 are important and need negotiating. Three years down the line and they have just about been able to negotiate the articles. And these free trade agreements usually take years and years to negotiate. So many people think, after three years we have a deal now, great and we’re out. No, this is only the beginning. We now start to begin the actual trade agreement which is about how UK businesses are able to trade with Europe and the rest of the world. There are 88 free trade agreements in place with roughly 80 countries that the EU has, but the UK will not have anymore.
LD: This feature now seems very relevant since it looks like Brexit will go ahead doesn’t it Ed?
ES: I think it’s pretty much done and dusted so obviously the conservatives won the general election by quite a big majority so I think it’s pretty certain it’s going to happen. Certainty is actually better than uncertainty I think most people will agree so it’ll be interesting to see how the profile of companies change as we move into the future with UK outside of the European Union. That’s why we brought Marcus in before the election and we were worried whether it was going to work or not, but now it’s very timely and I think if you have a European market, a European presence this will give you a lot of information about the technicalities of setting up. I used to work at a Swedish bank and Brexit and the uncertainty around it, made them do something similar the other way around. They are a publicly traded Swedish company and they were operating in the UK as a branch with no limited UK entity and after the vote, within about a year, they set up the limited company that was the incorporate subsidiary of the Swedish company. So it is forcing lots of pan-European businesses to have separate entities and jurisdictions. Obviously there’s extra admin which we can help with, and we do work with a number of German and French companies in particular, and other European companies but mainly French and German, and we do help them set up an operation or entity in the UK. If you’re just catching this podcast and you’re from a European country you should get in touch because we know things you need to do, for example, if you’re running a payroll in the UK and you just want to pay staff, or you want to have a full limited company we can give you all the guidance on what you need to do. It’s very timely.
LD: Perfect. So what are we going to talk about in the news then?
ES: Lots of interesting stuff. There’s all sorts of big investments going on, particularly in manufacturing and construction but mainly Oxus Energy which is a battery manufacturer. They’ve just built their new office factory in South Wales. One of the big themes of the general election was regional inequality. So you can see the electoral profile change and actually if you look at what’s going on in the economy, there’s a lot of things going on outside London. The unemployment figures came out yesterday, and it’s put unemployment at the lowest rate since 1975. Interestingly the paid geographical spread was 5 out of 9 of the regions where pay growth substantially faster than prices. It’s a good time but I don’t think a recession is far away globally. Whilst unemployment’s really low at the moment, I think we have to stay put and see and wait and see. The other interesting bit with SME’s is that 30% of the population is employed by SME’s, it’s a bit chunk. They are key but we need to make sure, including Mushroom as well, that companies are as resilient as possible. You’ve got the Brexit uncertainty, probably at the top of the asset bubble by 2021-22 so keeping things lean and mean, and forward thinking is really important. Marcus goes through some of the Brexit scenarios and some of the things you can do as a company to protect yourself from that but I think 2020 will be a pretty good year for the economy but I think that’s it’s one of those situations where you make sure the roof is fixed before the rain comes and save a good cash balance. I know you don’t get much money off interest but at some point you’ll need that kind of cash to be resilient so that stuff is important. I think Marcus mentions that too. I know it sounds like a silly, simple thing to do but actually just getting some cash in the bank and holding on to it is pretty valuable at the moment.
LD: It’s true. OK with that being said let’s get on to the next half of the feature.
ES: The other important thing to stress. I’ve been to one of your talks, you did a talk at Cheltenham Chamber of Commerce, and I remember you saying, the solution you provide is something that can benefit you even if we remain in the European Union. So let’s just talk about the solutions you provide that can, not necessarily, circumvent the friction necessarily, but if you’ve got a European business, having it as a European operation, a European company is actually something that is pretty sensible to do anyway.
MB: Yes. Now it gets technically. I’ll need to go a bit into detail in order for people to understand how it works. So our idea of our solutions for UK businesses is that they can remain as a business. How does that work? Quite simply we can establish a business for UK businesses in Europe.
ES: So we’re talking like a Dutch BV company or a Gmbh which is a German limited company?
MB: Exactly. We can also host them. They can run their European business with very little disruption to their UK business.
ES: And by hosting you mean having distribution channels if they have products?
MB: By hosting I mean first of all the administration and the tax side of it. We can also do the operational side of it depending on what your business model is. We picked Dusseldorf primarily for people who want to sell services. Dusseldorf is a great business hub, it’s on par with Munich and Hamburg. What we have is an office building with real offices or serviced offices, virtual offices or meeting rooms etc so we would prepare everything for you to simply come over and sign the company statutes at Notaries office, open a bank account and then you’re German business is basically up and operative. We also have a network of associates like chartered accountants, lawyers and so on who can do all your accountancy, your annual tax return and depending on what your business model is, we can find you the right operators, service personnel to run your service business in Dusseldorf. Another option is you can do production from Dusseldorf. For instance, like UK high street brand Lush has done years ago they decided to go to Dusseldorf, before Brexit, around 15 years ago. So what we offer is not only Brexit circumvention or trade barrier circumvention, it’s also services to grow your business in a way that you wouldn’t be able to, purely from the UK.
ES: You essentially have a comprehensive operation in the European Union, in continental Europe, and there are transportation benefits, for example being able to move goods around, I imagine a little bit cheaper if you’re doing the logistics directly in Europe. For example, you have a fulfilment centre that you use in the Netherlands. You just hop into the Netherlands from Germany, where’s the place called?
MB: It’s called Roermond, it’s a small town and it’s only 40 minutes from Dusseldorf, just behind the border. It’s also a few miles to the Belgium border so it’s in between this narrow strip, this pan handle in the south of the Netherlands near Maastricht. We picked the Netherlands for selling goods because it’s just ideal for goods distribution for Europe and throughout the world.
ES: Rotterdam, trains, motorways?
MB: Exactly, so whether your stuff comes from China into Rotterdam or whether it comes from the continent, the whole infrastructure but also the legislation is geared up for it. So the Dutch have a legislation that anyone can apply for, it’s called VAT Deferment so that means you do not pay any import tax, any VAT upon import of goods but only when you sell it, so you have a much better cash flow situation. And also, if you would move your UK operation to the Netherlands, regardless of Brexit, it could save you a lot of your operational costs simply because of cheaper delivery and forwarding costs. We have the option to register a company for you in Roermond in Netherlands including all the administration and taxation matters. We have a chartered accountant working inhouse and attached to that is the fulfilment so anything to do with order fulfilment if you are an online seller and we even have the platforms for you to sell on. We take the orders from these platforms and fulfil them which means pick and pack them and then send them to the customer wherever in the world.
ES: A really good example of where that’s useful is where you’re selling an electronic device, and you have your UK plugs and products, you can ship that quite easily around the UK. But to sell a European version you can actually make sure the European plugs are packaged in that product. So when you’re shipping it across the EU not only have you the practical logistics benefits but actually you’ve got simpler compliance with product regulations.
MB: The services we supply to customers can be individually tailored to their needs. Say you import British electronics with British plugs on it, you can say for the continental market, I’d like you to change the plugs, so we just get the plugs in and change them for you. That’s not a problem we can do that. So jobs like that we can do for people. You can pick the packaging. We’re green in general so anything is bio-degradable and we hardly ever use plastic unless we need to do it in terms of product safety. We use LED lighting but apart from that we try to do the best in the interests for the customer and larger companies can’t do that. I appreciate that because they have to work on the basis that one size fits all because they’re large companies. We’re a medium sized company so we can fulfil all these individual requirements for people.
ES: We’ve covered a lot there, what we should go back to, particularly for UK businesses, we know there’s a lot of uncertainty right now and we know that if the Johnson deal is signed there is a trapdoor to a no deal.
MB: I have to explain that because people have been saying oh it’s a trapdoor but no one has been saying why. If you look at the new deal, they are certain indications that are pretty obvious, for example, level playing field. That’s an expression for the alignment of EU regulations and UK regulations and in May’s deal that was still mandatory, so that was part of the deal. In Johnson’s deal it’s not legally binding anymore.
ES: So we’re signaling to regulatory diversions?
MB: Yes. That’s regulations on social, medical and agricultural standards. That indicates moving away from the EU. There’s a very good reason to assume by the end of 2020 or even before that, Johnson might say we don’t get anywhere with this trade deal, and Americans are already in pole position, there have been talks behind closed doors regarding salvaging the NHS for instance and other public services, and I think that would work very much in favour for Johnson. So this is why people believe there’s a very good chance this deal with Europe might not happen and Europe will certainly not accept any deal that will soften their standards. That will create a no deal.
ES: It’ll create a big barrier. So if we’re anticipating that happening, if you were to give your top five measures for a UK business, today. What would they be?
MB: Well, I think given the fact that not every business is an exporting business, I would say, that the general advice is to prepare to make your business resilient to economic changes. So first up would be to check all your legal requirements. So you need to check IP Protection, Data Protection so GDPR, and all the contracts you have with suppliers and so on, just to make sure you’re working from a good legal base. Then, obviously increase your capital base, save up money. Review what your cost situation, what is your rent and other fixed costs and other costs per month and see if you could save. Also, review your business model in general and maybe overhaul it, so maybe get rid of less profitable or costly sectors without a lot of future perspective and enhance your work on your core business. Point 4 is that exporting businesses are a lot more resilient to any changes so see if you can grow your markets by exporting, online is probably a good idea if you have the right product.
ES: E-commerce when something can be easily packaged and shipped around.
MB: Exactly. For exporting businesses, build a bridge into Europe to access new markets or merely stay competitive, say if you have a product from the Far East and you know you have to pay more tariffs that your competition on the continent, you might as well set up on the continent, which is where you come back to the services we provide. We do exactly that.
ES: Brilliant. Marcus it’s been an absolute pleasure. We may get you on again if we have a Brexit related podcast, maybe a debate or a discussion?
MB: It would be a pleasure. Thank you very much.
ES: Thank you Marcus. Cheers. Bye.
ES: Just before we go onto some updates. Louis you’ve been involved in the production of this podcast for the last couple of months, just tell us a little bit about what you think the most exciting thing with Mushroom is at the moment?
LD: So a great thing about Mushroom at the moment is we’re really adapting from the feedback we’re having from our market. We’re having quite a big website change at the moment as we and other members of our client base thought that our website was maybe a bit outdated. So we’ve been adding loads of new bits to the website which you can see online. With the Fun Guys, we’ve added a new tab so you can see the Jargon Buster, blogs and links to all the other podcasts online. And it’s great to see different businesses coming onboard, and we’re helping them with loads of different things all the way from yoga studies ….
ES: to PR agencies. We’ve got manufacturing firms, international software companies, all sorts of crazy stuff.
LD: We’ve got everything and I think when I came onboard I expected it to be quite flat and quite uninteresting with the businesses, let’s put it that way, but actually all the businesses have been very interesting and how we help them as a business is very interesting to learn from.
ES: Yes I think so. I think you’ve learned a lot. Well done (laughs).
LD: I definitely have. Ed, is there anything our listeners should really watch out for in Mushroom in 2020?
ES: Yes loads. So I think we’ve nearly approached 100 customers now so we’re sort of on target. We are starting to scale up our operations so there’s a lot more automation going on internally, which means the value is uncomparable. That’s the main point to get across. The value prospective clients will get and current clients get already is going to be through the roof and I don’t think anyone’s going to touch us on quality and price. So things to look out for in 2020. We’re going to have more podcasts. We’re actually going to have a couple of live ones, in the summer, which will be fun. We have got the new site. Another thing is our international market, we are approaching more international companies so there’s a big focus on Germany. So if you’re German and you’re listening to this, get in touch (laughs). We really want to make sure if you’re operating in the UK and you want to have a smooth transition into the new trading environment, you should definitely get in touch with us. The amount of Gmbh’s is quite a proportion of the client base. Gmbh is a German limited company. You should definitely get in touch. We’re also launching a platform so our services are going to be driven from our own members platform, and we’re hoping to get that released in probably January/February and we’re going to start doing more with our legal services which’ll be quite exciting. So our legal services portal will be quite a spectacular piece of kit hopefully. It’ll start off pretty simple but eventually it’ll take off. Yes so lots of things to look forward to. And in the New Year we’ll start again with the podcasts, probably the end of January, beginning of February. We’ll get some good people on. We’ve got a guy who specialises in insurance. Now insurance is really dull. But actually, to talk about some insurance things is really important because more and more emerging risks are brewing in the background and so being able to make sure your company is resilient to those risks, cyber security being the main one, is essential. We’ve got a lady coming on to talk about International Standards Organisation certifications, so ISO, you’ve got ISO9001 and ISO27701 and they help companies have a minimum standard of quality for things like manufacturing, customer service, information security, environment, privacy, so it’ll be interesting.
LD: I think I might need to listen to that, that just sounds like numbers and letters to me (laughs). Alright guys well thanks for listening and we’ll see you in the new year!