Exchange rates: How to safeguard your business

The exchange rate is killing my business

A weakened pound is causing considerable financial pressure for UK businesses importing goods from Europe and the United States. For many British companies it’s resulted in a stark choice between increasing their price points or coping with reduced profit margins in the hope that the situation will improve.

If your business is in decline due to the currency exchange rate, you may feel the situation is out of your control. But there are steps you can take to redress the balance, stave off insolvency, and get the business back on track.

But how exactly do exchange rates affect business?

How currency exchange affects your business

If you’re a UK business importing all of your raw materials from Europe or America, and selling purely to the UK market, the weakened pound means the goods you import are more expensive.  

For businesses importing only some components or raw materials, the effect will be reduced proportionately, but the fact remains that a weak pound buys fewer US Dollars and Euros. Conversely, UK companies that export their products for sale abroad, actually benefit from a decline in the value of sterling.

In general, exchange rates are influenced by a number of factors, including:

Cushioning your business from financial problems when exchange rates are high

Exchange rate variations are difficult to predict, which makes budgeting less effective and causes general uncertainty within your business. But when negotiating trade contracts, you may be able to secure deals that fix the rate over a period of 12 months or so.

Forward contracts

Forward contracts lock in an exchange rate when you don’t have to pay for goods immediately. You secure the current rate of exchange, usually for up to a year. This helps to deal with a volatile market, relieves the pressure on finances, and helps you plan your cash flow. Overall, you have greater certainty over future profit levels with this type of contract.

Currency brokers

Finding a reliable currency broker can help you control the cost of imports. They will advise on how to manage your risk in the face of exchange rate fluctuations, and provide specialist exchange rate services.    

Insolvency experts

Seeking help from licensed insolvency practitioners (IPs) can help you prevent further financial decline. Real Business Rescue are specialists in corporate rescue and recovery, and can explain the short-term and long-term solutions available. Depending on your business make-up, these could include:

HMRC Time to Pay

If your company has arrears with HMRC, it can be a particularly worrying situation given their power to quickly close down insolvent businesses. Time to Pay arrangements (TTPs) offer you several months in which to pay back arrears of tax or National Insurance.

Although a TTP wouldn’t cover your current tax liabilities which need to be paid alongside the arrears, the arrangement reduces pressure from HMRC and can prevent further decline.

Company Voluntary Arrangement (CVA)

CVAs provide protection from legal action when you’re behind with payments to unsecured creditors. It’s intended for businesses whose poor financial situation is deemed to be temporary, and prevents further interest and charges being applied to the debt.

As a director, you carry on running your company once the terms have been agreed. These terms and conditions are negotiated by the appointed insolvency practitioner, who reviews your company’s finances to arrive at an affordable single monthly repayment.

Alternative funding

Depending on the make-up of your business, you may be able to secure additional funding from sources other than your bank. Invoice factoring and discounting might be suitable if there is value within your sales ledger. Alternatively, owning a number of business assets could help you access a lump sum under a sale and lease-back arrangement.

Real Business Rescue is a major part of Begbies Traynor Group, and can help if you feel that the high exchange rate is killing your business. Our licensed insolvency practitioners have extensive commercial experience. We’ll assess the available solutions with a view to turning your business around, and explain the best options. With 75 offices across the UK, you’re never far away from expert and confidential advice.