How treating FX with the same importance as taxes will save you a lot of money

As the engine room of our nation’s economy, the middle market employs a quarter of Australia’s workforce, produces almost a quarter of our country’s revenue and contributes a fifth of the national net tax take.

But more and more, I am noticing that one of the biggest risks for a lot of clients operating globally is not having an efficient FX strategy in place. This can have a huge impact on profit and loss, and ultimately disrupt overall business performance.

It all comes down to managing cashflow effectively. And FX, just as much as tax, plays a major role in keeping cashflow in check and healthy.

While businesses were incredibly nimble in their COVID-19 response, we often see that implementing the right financial foundations can often get overlooked due to competing business priorities. This becomes even more challenging when unforeseen circumstances arise.

For example, a business that manufactured glass products with imported materials from Taiwan were severely impacted by COVID-19. When the pandemic hit, imported products sat on the docks in quarantine, adding a $4,000 weekly headache. Ultimately, the business pivoted and engaged with local suppliers.

Doubling down on core financial strategies, like FX risk management, can help to weather the storm and put you on the front foot. Understanding fixed costs can give greater cashflow certainty, so it’s time for SMEs to rejig their accounting essentials toolkit and add FX strategies to reduce any blows to hard-earned profits.

Start with the basics

We are all familiar with this story: when one person, typically the founder, is to wear all hats across the business. FX usually gets ignored or put in the, ‘We’ll just go with the exchange rate on the day and not give too much thought to it’ basket.

Say you buy from a supplier in USD and have a US$20,000 spend. In the last 12 months you would have been managing market rates as low as 0.57 in March 2020 and highs of 0.78 in Jan 2021. The cost in this example of being unprepared for extreme volatility could be as high as AU$9447 on a single transaction, which can be the difference between black or red ledgers.

It can feel daunting to know where to build FX knowledge and a financial plan that incorporates hedging solutions, such as Forward Contracts and Target Rate Transfers. However, doing so could save your business on FX payments and give some much-needed currency certainty.

Upskill when you upscale

Part of FX upskilling involves tapping into your existing network. As financial advisors, we help our clients build a foundational understanding of currency volatility and the benefits of hedging more strategically.

As your needs grow, accountants can connect you with trusted partners to help define FX strategies to suit the current needs of your business. The benefit of working with specialists such as OFX is having a dedicated expert to offer real insights on minimising risks and leveraging your global trading.

As SMEs adapt to a post-COVID environment, it is important to seize opportunities to safeguard newfound growth and wealth. Taking a proactive approach to FX is integral to minimising the financial risks to your business. I encourage all business leaders to keep informed and have the confidence to leverage the expertise of financial partners and specialists to establish strong financial foundations to facilitate business success.

Raelene Berryman, Partner, Pitcher Partners Sydney