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Can your business cope with economic changes

Prepare yourself for any changes in the economy

Can your business cope with economic changes

 

All businesses are sensitive to these macro-economic events such as interest rate changes and exchange rate changes, but SMEs are particularly vulnerable because they don’t have the resources that a larger corporation or a larger business will have to manage those events.  So they don’t have lots of cash resources.  They might not have lots of sources of borrowing to draw on if they have a shortfall in cash of these events. So that’s one of the issues for SME’s.

 

So what we’re talking about for exchange rate changes is for example if you buy your products in dollars and then you sell them on in a different currency.  And if you’re Sterling based and Sterling weakens then what you’re going to find is that your costs increase which narrows your margin and it’s very difficult to put your prices up so it’s going to affect your cash flows.

 

With interest rates if you’ve got debt and it’s variable debt or an overdraft, as interest rates go up then obviously that’s going to be a bigger finance cost for you and it’s going to affect your cash flows again.

 

So the main issue for SMEs is not to be too exposed to these issues which are going to create volatility at any one time.  Now that’s really difficult, but you need to look at your business model and have you got a lot of debt?  Have you got a lot of exposure to currency rates?  And think about perhaps moving away from that situation, so you don’t have to fight on all fronts on those particular issues.  You can of course for exchange rates buy or sell currencies ahead, but that can be expensive if you’re a small business and you’re looking at large amounts and you’re having to go through a bank because they’re going to charge you for that.  But that’s one way.

 

Another way is to think about match funding.  So if you’re buying in dollars, can you sell in dollars as well?  But overall what you want to do is look at your business model and just think about how well your business model is going to cope with these economic changes or possible economic changes and if you want to be fully prepared then just think about perhaps moving into slightly different areas, thinking about how you can protect yourself.

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