Volatile Exchange Rates Costing Small Firms
Almost a third of small firms that trade overseas are losing money due to exchange rate fluctuations, research from Foreign Currency Direct has revealed.
The survey of 500 small and medium-sized enterprises (SMEs) found that 29 per cent of small firms that trade internationally are losing out because of the current volatility of exchange rates.
The Foreign Currency Direct research found that because currency fluctuations of two per cent a day are not uncommon at present, small firms are struggling to keep track of Euro or US Dollar rates.
However, the survey also revealed that 28 per cent of SMEs are planning to expand their overseas activities over the next 12 months.
Foreign Currency Direct chief executive, Peter Ellis, warned that small firms need to assess the risks of trading in another currency, before expanding abroad.
“In the current market, when many small firms are feeling the brunt of the recession, opportunities to add directly to their bottom line are hard to come by,” said Ellis. “But making the wrong call on currency could cost businesses thousands, if not millions, of pounds of potential revenue.”
Foreign exchange business Moneycorp spokesman, Mark Deans, said that he was not surprised that so many businesses were losing out due to currency fluctuations.
“Small business owners have a million other things to worry about other than foreign exchange,” he said. “But firms need to assess the exchange rate carefully and use forward contracts to protect themselves.
“Firms need to get advice on buying or selling their currencies at the right time, whether that is at a certain time within the day, week or month,” added Deans. “Timing is critical, and they should also secure rates in advance to protect themselves instead of taking a gamble.”
He added that businesses need to do their research before expanding overseas.
“Businesses need to look at what currency they will be paid in, how risky those markets are and how volatile that currency is,” said Deans.
The Foreign Currency Direct survey found that 45 per cent of SMEs do business overseas, of which 60 per cent of the trade is carried out in Western Europe and 35 per cent in the USA.
For more information on managing currency fluctuation, visit the Doing Business Abroad section of the Institute of Directors website www.iod.com