How currency fluctuations can affect SMEs 

06/02/2018 05:19



Finance responds to what’s happening on the global stage. Many small businesses live in fear of worldwide currency fluctuations, which can have a detrimental impact on imports and exports and ultimately threaten their all-important bottom line. If your business relies on trading with other nations or securing financial support from overseas, you are at the mercy of circumstances outside of your control, often dictated by factors such as political instability and economic pressure. Let’s take a closer look at some of the ways your SME could be affected by fluctuating currency rates and ways to obviate this risk.


Dominant Currency Threats to SMEs

Only purely domestic companies ever truly escape the risk of currency fluctuation. However, many businesses nowadays, particularly smaller companies, rely on a combination of domestic revenue and overseas revenue. Having multiple revenue streams opens you up to risk when currencies start to fluctuate, as the exchange rate is not always in your favour. If your products are imported from overseas and sold in the UK, you are at risk. If your business exports overseas while manufacturing in the UK, you are also at risk. This is one of the reasons why Brexit has proven so divisive to business owners, as even a small drop in the value of the Pound Sterling relative to the Euro could have devastating consequences. Small businesses rarely have the buffer zone in place which larger companies rely upon, and when your profit margins are already tight, this can be difficult to get around.

In another scenario, you may have investors overseas and find you lose some of the value of their investment in an unfavourable exchange rate. Few companies have zero risk as a result of currency fluctuation.


Taking Stock of Your Risks

Whilst it’s impossible completely safeguard your business from these risks you can help to lessen them with some clever forward-planning. Begin by creating an inventory of your revenue streams. Perhaps you employ freelancers who you pay in their native currency. Maybe you have a warehouse or stock which is designed overseas. Your activities will have created a certain financial footprint, so list everything you do which is conducted in foreign currency.

Secondly, consider some less than desirable scenarios and how you would handle them. Facing the worst can help you to plan ahead and perhaps find valuable ways of lessening your risk and keeping hold of more of your business profits. 

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