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Kate Holton
HEREFORD, England — Above a factory floor of machines carving metal to within a millionth of a metre, Stephen Cheetham is preparing his company for the unknown: a British exit from the European Union.

Since the government announced a referendum on Britain’s future in Europe, Cheetham has deferred investment decisions, put off expensive hiring and even bought equipment with his own money to avoid straining the balance sheet.

The aim is to prepare his company, which makes parts for first-class airline seats and intricate scientific equipment, for what he fears will be a slump in business if Britain votes to leave the world’s biggest trading bloc.

“It’s extremely difficult to prepare for and it worries me witless,” said the owner of PK Engineering. “But our disaster plan is very clear: if all the kit is paid for, we hang on to it and we ditch everybody apart from the core.”

Britain’s big listed companies have appointed lawyers and strategists to identify the risks of a British exit, or Brexit.

Wary of meddling in politics, however, they have largely not detailed their plans for the June 23 vote.

But smaller companies in the manufacturing heartlands, crucial to the economy and often inextricably linked to continental Europe, are formulating contingency plans that illustrate the risks facing businesses across the country and the steps being taken to mitigate them.

At the start of 2015, almost half of Britain’s private-sector turnover came from firms that employed fewer than 249 people, according to the Department for Business.

For Cheetham his “disaster plan” involves jettisoning nearly half of his 30 employees if a Brexit compounds the drag from an already slowing global economy at his firm in the English rural town of Hereford.

Across the nearby Welsh border, Gareth Jenkins, who runs a tool making firm, has identified which major customers in Europe are likely to abandon him should they have to accept higher costs or slower delivery times that might come from new border controls with EU countries if Britain leaves the bloc.

He has calculated the financial impact and says in a worst-case scenario he could lose 25 percent of his turnover. He plans to tell his 91 employees in the next couple of weeks that a vote to leave could force him to lay off a quarter of staff.

Very little is clear ahead of the referendum called by Prime Minister David Cameron, with British voters divided on membership and both sides in the debate arguing Britain would be financially better off if their cause succeeds.

The fears of business owners like Cheetham and Jenkins are driven by what most Britons on either side of the debate accept is unchartered economic territory should Britain vote to leave the group it joined 43 years ago.

The terms of any divorce would be subject to two years of negotiations with the EU, with no guarantees of how the new order would look.

At present British companies trading with other EU nations do not face customs tariffs, costly paperwork such as certificates of origin or VAT — sales tax — on imports.

Should it opt to leave, Britain may negotiate continued tariff-free access but additional administrative burdens will almost certainly apply, making exporting to and importing from the EU more costly, say business owners and lawyers.

They also fear any restrictions on European workers and a prolonged period of a volatile pound, while the effect on the EU of losing its second-largest economy is unclear.

Adam Shuter, head of haulier Exact Logistics, is investigating whether he should set up a German office, which he thinks could cost less than the additional taxes and paperwork of serving EU customers from outside the bloc.

Like Cheetham, 59-year-old Jenkins has been studying contracts and trying to work out whether three of his biggest clients, all based in Germany, would be able to cope if they had to accept higher costs or slower delivery times.

He estimates that one if not two would stop using his FSG Tool and Die, Europe’s largest privately owned design and build tool making firm.

“I’ve mapped this out in my mind,” he says, in a room off the spotless factory where tools are being built to make everything from yoghurt pots to replacement hips and car parts.

“The minute we vote to leave customers will say there’s a risk here and we need to mitigate it. We ship tools from here on Monday that they’ll be using by Thursday. What happens if that’s disrupted?” he said, fearing that they will look elsewhere.

Jenkins fears losing the close links he has developed with other EU firms should a vote to leave exclude it from the free movement and trade that has made the alliances work.

The customs issues are perhaps most crucial for hauliers such as Shuter’s Exact Logistics, which delivers across Europe from its base in Rugby, central England.

While lawyers and business owners say any new tariffs could be low, they worry that deliveries could be delayed by customs clearance and additional paperwork, including certificates of origin and export tax declaration documents.

Shuter and one of his clients, Pete Churchill from Robert Welch Designs, estimate that the additional paperwork could mean the cost of a consignment jumps to between 150 to 200 pounds from the current 50 pounds.

That compares with the value of the consignment which can sometimes be as little as 500 pounds.

Sitting in an office crammed with filing cabinets and maps of Europe, Shuter is investigating how much it would cost to buy a new software system that could clear consignments with European tax and border authorities if Britain were to operate under different rules.

Facing so many unknowns, business owners such as Cheetham are struggling to plan for the future. Back in Hereford he lets his frustration show.

Normally a supporter of Cameron’s Conservatives, he says he is furious at the position the government has put business owners in. — Reuters