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Global Currency Fluctuations for the Small Business Owner

Global currency is in a constant state of fluctuation, with exchange rates changing on a daily basis as a result of so many issues, including the state of the current economy and political instability.  Exchange rates for sterling have been particularly unstable since the Brexit vote in 2016 and we’ve seen the pound drop rapidly and then fight its way back several times as the negotiations for Britain to leave the EU have played out over the past few years.   This type of financial instability is bad news for business owners here in the UK, especially for those who own small to medium sized enterprises on which our economy depends so heavily.

Businesses which trade with overseas partners or customers are particularly vulnerable to the changes in currency and exchange rates as it results in difficulty in predicting their earnings.  If a business owner predicts the business will earn a set amount each year, this sum could significantly increase or decrease depending on the exchange rates.

Global currency fluctuations present a challenge for small businesses when setting up new deals and contracts.  The changing exchange rates could mean that an agreement or contract that was initially a great deal could put the business at financial risk in the future.  This is the reason that so many small business owners are hesitant to agree on specific figures when negotiating deals which leaves them at a disadvantage.  Some businesses have resorted to using automated trading programmes to invest in currency on Forex in a bid to secure more profitable deals.

When it comes to imports and exports, business owners often find that sales to overseas customers increase when there is a decline in sterling, whilst imports are negatively affected, resulting in supplies from overseas increasing in expense.

Even at times when exchange rates are favourable, small businesses often overpay when completing international payments because many traditional providers, such as banks, will inflate their exchange rates and take the “hidden” mark-up as a fee! 

However, it’s not all doom and gloom as there are some companies that are committed to making it easier and more cost efficient for small business owners to deal across all currencies.  Some will offer multi-currency accou9nts that allow a business to hold several different currencies and switch between them using a mid-market exchange rate to make payments.  These companies are regulated by the Financial Conduct Authority (FCA) to provide extra layers of protection for users and are now becoming popular not just with business owners, but with individual customers who travel or have residences in overseas countries.

Whilst business owners cannot avoid the constant changes in currency exchange rates, some careful financial planning will help to reduce the impact on their business.