Post Brexit currency fluctuation and how to hedge against it – do you have a plan for your business?

The Brexiteers didn’t have a plan, the former PM David Cameron didn’t have a plan – so it’s hardly any wonder that many SMEs don’t have a plan for a Brexit-vote landscape…

Well, we need one now and we need it fast. A lot of my clients who run SME’s are suffering the immediate impact of currency fluctuations and the pound falling through the floor against the dollar to levels not seen for 30 odd years. The bottom line is no one can plan effectively if you’re at the mercy of fluctuating markets and panicked bankers.

So here’s my advice in two steps. Step 1 is how to develop a currency strategy, Step 2 specifically looks at ways and means of minimising your exposure to currency fluctuations. In these uncertain times, these could easily mean the difference between profit and loss for internationally trading companies.

Step 1: Have a plan

1. Don’t panic! The Brexit process will take at least 2 years so get a short term plan in place as an interim measure to hedge against the currency risk and ensure you have enough cash flow and credit lines to see your business through these uncertain times.
2. Start talking to your suppliers and customers to reassure them of your position & dispel all the misinformation that’s around.
3. Consider your exposure to the currency risk by establishing what you are expecting to pay for, get paid for, in what currency and when.
4. Understand how exchange rate fluctuations will impact our incomings and outgoings.
5. Establish goals such as an ideal exchange rate that allows you to remain in line with your business’s budgetary projections – know your best, worst and expected projections so you can create your currency policy.

Step 2: Ways & Means of hedging against currency fluctuation

1. Internal hedging – if possible given the company cash flow, buy and sell in the same currency at the same time.
2. Forward hedging: sell a set amount of foreign currency at a pre-agreed exchange rate up to one year ahead but beware – the date is fixed so make sure your suppliers are reliable.
3. Price and sell your products in the foreign currency in exchange for cash in advance at the current market rate and transferred within a couple of days.
4. Agree an exchange rate with your suppliers for future orders.
5. Consider a bandwidth where contracts can be renegotiated if exchange rates move beyond an agreed area of tolerance (unlikely with EU countries but possible for softer currencies).
6. Insist payments are made in GBP.
7. Open a foreign currency account and rarely convert to GBP – ie match buying and selling in that country from that account, thereby minimizing exchange rate effects.
8. For big purchases, buy when the rate is favourable and hold the currency in a specialist foreign exchange business account.
9. Check transaction costs of exchanging funds from a local currency as they can be hefty.
10. Consider Currency Protection products – although beware as they can be expensive
11. Get advice from a foreign exchange specialist.

And finally… don’t forget to look for opportunities!

Take advantage of the drop in Sterling – use it as a positive for incentivising overseas buyers!

WrightCFO Ltd is a Financial Consultancy specialising in part-time Finance Directors for SMEs. Call or email me to discuss your business.

Highly Commended Best New Start-Up, Richmond Chamber of Commerce 2016

Tel: 07817 784 603
Twitter: @sophieLwright
Email: sophie@wrightcfo.co.uk
Website: http://www.wrightcfo.co.uk
Blog:http://www.wrightcfoblog.wordpress.com
LinkedIN: https://uk.linkedin.com/in/sophiewright

WrightCFO- Introducing the new team. We’re here to help.

This was going to be a blog introducing you to the newly expanded WrightCFO team. And it still is. However, I must first address the more pressing issue that this week, the UK voted to leave the EU. It may take some time to sink in and assess what the implications are for your small or medium business however, here are a few good reads I’d like to share with you. They may just help make sense of it all.

Richard Mullet of The Legal Partners has put together a short summary of “What Happens Next” which contains knowledge worth equipping yourself with.

http://www.thelegalpartners.com/article-50-leaving-the-eu-and-what-happens-next/

The accounting firm Kingston Smith published a useful article yesterday called, EU: the UK has voted to leave but what does this mean for SMEs?

http://www.kingstonsmith.co.uk/insights/eu-uk-voted-leave-mean-smes/

I found this article to be encouraging and positive in the light of uncertainty. UK businesses must and will go on.

At WrightCFO , we are here to help.

An outsourced, part-time FD has proved such a popular and such a cost effective way for businesses to get flexible, top level financial advice in bite-size portions that we have been rushed off our financial toes.

We’ve been so busy in fact, that I’m delighted to announce I’ve recruited six new FD superstars to the WrightCFO team, all of whom are very commercially focused. Full information on each affiliate’s experience and expertise can be found on our ‘Meet the Team’ page, but for now, let me give you a 60 second run down.

Olivia – is a qualified CIMA management accountant with 20 years’ experience across media, licensing, advertising and entertainment industries.

She specialises in

• providing management with financial insight to help them manage their businesses better
• efficiencies and improving profit margin
• client profitability analysis

Sofia – is a qualified ICAEW chartered accountant and fellow with 15 years’ experience across media and entertainment industries in both small and large multi-national businesses.

She specialises in

• advising business leaders on strategy and finance
• business reviews and strategic planning
• change management and process implementation

Ivana– is a qualified ACCA chartered accountant and fellow with 12 years’ experience in commodity trading, private equity, tech, wholesale, retail and manufacturing.

She specialises in

• investment appraisal and due diligence
• establishing overseas subsidiaries and ongoing management
• providing strategic and operational financial advice to SMEs and Startups

Sian – is a qualified CIMA management accountant with experience across manufacturing, engineering, technology, logistics and digital business services industries.

She specialises in

• turnaround and rescue situations
• assembling and managing international finance teams
• building  strategies for sustainable profitable growth

Thomas – is a fellow of the Association of Certified Accountants with over 30 years’ experience across the financial services intermediary market and has a very keen interest in the charity sector.

He specialises in

• driving strategic direction and business planning
• advising executive boards
• evaluation of potential acquisitions

Paul – is a qualified CIMA management accountant, also with an MBA. He has 25 years’ experience across multiple industries including media, technology, agency and creative industries.

He specialises in

• broad financial, commercial and strategic CFO leadership to SME owner-mangers
• established-business issues such as divisional underperformance and stagnation
• originating, evaluating and executing, new ideas, strategies, plans and investments

We look forward to getting you the Right financial advice from the WrightCFO & helping you and your business find the best financial solutions to improve your business.

To discuss your business’s financial requirements just call or email us on 07817 784 603 or sophie@wrightcfo.co.uk.

 

Brexit or Remain-ian – what’s best for small business?

Ok, so I need to be clear about one thing. NO ONE is clear exactly what a Brexit will mean for business and anyone who tells you that they know for sure is plain fibbing. No one can know for sure whether we will be better off (economically, politically, financially) staying in or exiting – which is, after all, the bottom line.

So, how to make the call? I’m not going to try and make up your mind for you, we must all make a personal decision based on what we think will be the best – or least worst – option, but here are some points that I think are important to know and worth considering if you’re running a small or medium sized business and trying to decide whether to vote for ‘Brexit’ or be a ‘Remain-ian’.

1. Referendum – some argue the mere fact that the referendum is being held at all has been bad for small business by creating uncertainty in the market. Given we are where we are, many economists maintain the ‘safer’ route is to remain in the EU as the unknown quantities of a Brexit could add more uncertainty to the markets, thereby reducing investment and confidence further, which will inevitably filter back and hit small businesses. Cameron says, “The UK is safer, stronger and better off in reformed EU. Business will retain full access to free trade, single market, with secure jobs, investment and lower prices.”

• It’s important to remember that within Cameron’s recent renegotiation package, the UK was assured of its continued ‘special status’ within the EU, will be allowed to retain the pound and not be forced into ever closer union.
• Cameron argues that he has secured the best of both worlds for business by reforming the EU from within, thereby keeping jobs and investment secure and prices low.

2. Renegotiation. If Brexit is voted for in the upcoming referendum this June, we will not know what the terms of leaving will be until the two year period of exit negotiations are concluded. It is impossible to know what these negotiations will achieve and what terms we will be leaving on – ie better for business or worse for business. Some are arguing the case for holding a second referendum at this point, but to date Cameron has ruled this out.

• Cameron is currently against a second referendum as he says he’s done the best negotiation possible already but it’s worth keeping an eye on this as it would be important if he’s forced to concede this point.
• Is it possible that the EU could take renegotiations further if we initially vote Brexit with a second referendum offered once exit negotiations are concluded? There is no guarantee that this will be on the cards or that the negotiations will be concluded on any more favourable terms – in fact I would suggest it is unlikely. After all, the whole of Europe is watching to see what happens here and any concessions given to the UK could then be argued for by other member states wishing to exit.

3. Business Regulation. Pro-Brexit campaigners argue that we may regain some controls over our legislation and taxes if we no longer have to adhere to European directives and regulations (if the European Communities Act 1972 is repealed), but the reality is that on a day to day basis, the majority of laws regulating small business would not change that much. In addition, businesses could still have to agree to adhere to many EU regulations as part of any trade package, whilst simultaneously losing our place at the negotiating table in Brussels forever more.

• The UK could be forced to follow Brussels’ diktat to be allowed to continue to trade with European business without being able to take part in any of the decision-making process – as countries like Norway, Switzerland and Turkey currently have to do to various extents.

4. Immigration/Migration – A hot topic of course, but under EU rules it’s important to remember that the free movement of people works both ways, and any renegotiation would most likely restrict the movement and ability of UK residents to work freely in the EU, as much as it may make it harder for people to enter the UK.

• Depending on your business sector, migration restrictions may adversely affect your ability to source your workforce. It’s likely that a renegotiation would aim to restrict low skilled workers, whilst encouraging higher skilled and those with qualifications for hard to fill positions.
• This has already led to several large companies that could be affected to announce they would consider leaving the UK and relocating in mainland Europe in the event of Brexit.
• This could also reduce the number of companies coming to the UK to do business and this could obviously then have a detrimental knock on effect for smaller businesses.

5. Free trade. If the UK exits the European Union it could be made to pay tariffs on European imports and exports, potentially causing costs to rise significantly for British businesses, especially in some sectors.

• Because the EU and the UK are so mutually dependent on each other for trade they may not see the benefit of implementing tariffs, as to deter UK business would be a self-defeating exercise.
• Under Brexit, the UK could be free to negotiate its own import/export deals with other international countries – China/India/The US etc – possibly attaining better terms more quickly than going through the laborious trading agreement process within the EU. However, it’s important to note that these countries have already expressed a preference for us to stay within the EU and questions need to be raised over the bargaining power of the UK alone, as compared to within the EU.

6. And one last thing – The FT’s recent economics based article detailing three post-Brexit scenarios is worth reading. It’s deeply concerning given that in all three scenarios, UK business seems to be worse off. While we wait and watch the discussions continue, a study conducted by Capital Economics boiled the economic issues down into this table which I think is a really useful way to keep track of the issues and how they will affect UK business.

 

Sources of possible gains and losses from Brexit
Gains	Losses
Less regulation	Possible tariffs on exports to the European Union
Savings on European Union contributions	Loss of access to the single market
Ability to strike new trade deals	Damage to the City
Skills-based migration policy	Drop in investment caused by uncertainty

 

WrightCFO Ltd is a consultancy of Financial Controllers, Finance Directors and CFOs for SMEs in the London area.   wrightcfoblog.wordpress.com  wrightcfo.co.uk  @sophielwright