What should all businesses be considering right now
A few weeks ago Unilever and Tesco discussed the retail supply chain and how the exchange rate fluctuations are increasing costs for importers. On the other hand, exporters are ‘winning’ at the moment and are enjoying the increased demand due to lower prices for their buyers.
Unfortunately BREXIT and now the US election results have given rise to an increased amount of uncertainty around currency markets and what the future looks like for most currencies.
Currency uncertainty: what should I be doing?
Any time we – as holidaymakers – transact in another currency, there is always that waiting game to secure the best rate and save a few pence. But when it comes to business, making the rate call on when to fix currency rates has much higher stakes.
So in an ever increasing world of global trade, is it time for SMEs to take the plunge or do the fluctuations of currency outweigh the business opportunity and favour staying at home?
What is evident is that any venture into foreign trade – whether through import or export or simply trading in currency other than sterling – needs careful planning.
UK exporters are enjoying the benefit of a weaker sterling. Selling overseas can be more attractive to the local market as prices drop relatively in other currencies. In the absence of any existing currency hedging, a nimble exporter can take advantage of selling at cheaper prices overseas.
The biggest risk to UK companies with direct currency exposure is the temptation to do nothing – there must be an Foreign Exchange strategy, however simple.
There are a number of strategies that business’ can adopt ranging from the very simple; for example invoicing in sterling and insisting suppliers do the same – through to more complex like forward protection. The key to planning is understanding your exposure. Once you realise how trading internationally can leave you open to these challenges, with professional help a plan to manage the risk can be implemented.
Any business that receives or sends out a foreign currency invoice has both transactional risk and translation risk. In simple terms, the value of what you do today, will not be the same value tomorrow when it comes to foreign trading. Sometime this can go in your favour, and other times it can cause significant financial headaches.
Planning does not have to be overly complicated, and some simple analysis of likely trading can ensure that you are able to gain certainty, even if rates move against you.
It is vital that owner managed business keep their focus on doing business and remove the risk of an unwanted exchange loss that could turn a profitable growth business into a loss maker.
How to tackle currency uncertainty?
This will vary from business to business, but the key here to plan for the business. Menzies LLP has specialists to help you with every aspect of growing your business and we will be delighted to chat this through with you.
Richard is a member of the Menzies Retail Sector Team. Find out more about Menzies Retail sector expertise.