How Exchange Rates Affect Your Business
For most business owners who deal domestically, exchange rates seem like no more than abstract figures. Yes, you’re aware that the pound is worth less than it used to be, but aside from wondering how it will affect your summer holiday budget, you give it little thought.
The same cannot be said for businesses who deal internationally, and with more and more enterprises taking advantage of the internet to attract a global audience, it’s time to review this stance. If you want your company to eventually expand around the world, you need to gain new knowledge now.
So, how do exchange rates really affect your business?
The Cost of Imports Rises when Exchange Rates Fall
The pound has been a poor performer in recent months, and this means that its real world value has dropped. For businesses that import, this is bad news, as it means that the cost of buying goods from overseas will rise. The effect is simple: profit margins decrease, businesses earn less, and if you pass the price hike onto your customers, they’re unlikely to be happy.
The Cost of Exports Drops when Exchange Rates Fall
For businesses that rely on exports, the picture is entirely different, and now may be the opportune time to expand. Your goods will cost significantly less in real terms to overseas customers, meaning that even though you’ll make the same profit, your products will be more competitively priced, and more in demand as a result. If you can capitalise on this, you should be able to build a strong overseas customer base.
Businesses Will Earn Less and Pay More if Contracts Use Another Currency
Unfortunately, the bad news outweighs the good, and you’ll also find that should you sign a contract whereby your rate is specified in another currency, you’ll earn less than you imagined and pay more to overseas suppliers if the value of the pound continues to drop.
How to Lessen the Impact of Negative Currency Fluctuations
These problems only exist where you are either paid in a different currency, or agree to pay someone else in another currency, and luckily, there are some simple ways to reduce the impact of fluctuations on your business. These are:
Insist on Being Paid in Pounds
If you have the bargaining power, try to ensure that the currency specified in contracts is pounds sterling. This way, you know exactly how much you’ll be paid even if the currency value fluctuates. If you are not able to get paid in pounds it would be beneficial to set up foreign currency accounts. It’s easier than ever to have the money come back into the business through this method. It means that you have more accounts so clients can pay you in their native currency, and you can then exchange it back to pounds when the exchange rate is looking advantageous.
Use a Currency Broker
You could also try to secure a more competitive rate by approaching a currency broker. Not only will they offer you attractive terms, but they’ll also allow you to fix the exchange rate for a set period of time so that you know how much money you’ll be making.
Use a Specialist Company like Ebury
Thirdly and finally, use a specialist company like Ebury to carry out your business. They’ll offer you a competitive exchange rate and safe and secure transactions.
Follow these top tips today to reduce the impact of negative currency fluctuations on your business.