In this period of uncertainty, it is tempting to adopt a “wait and see” approach to Brexit. However, now is not the time to sit back.
If your business is importing from, or exporting to the UK, you must consider the implications Brexit will have on your profits, particularly when it comes to fluctuations between the Euro and the Pound.
Have you started planning? What’s your exposure? What level of currency risk can your business tolerate? Have you considered dual invoicing? What about ‘Forward Contracts’, are these the solution? Do you have a foreign currency account and should you have one? Have you spoken to someone who can advise you?
A six-step guide
Download this six-step Brexit guide that explains how your business can reduce currency risk as the repercussions around Brexit continue.
A good example of how currency risk can impact a business:
1. You are a manufacturer selling goods to the UK. The currency exchange rate is €1 =£0.90 (one Euro will purchase 90 pence Sterling.).
2. You purchase £10,000 worth of raw material from the UK at this exchange rate, so will have to pay €11,111.11 for the materials.
3. You sell the finished goods in the UK for €20,000, receiving payment in Euro.
4. Your profit in euro is €8,888.11. In Sterling your profit is €8,888.11 * (0.90) = £7,999.30.
If the Euro falls in value against sterling by 15%, which means that a Euro is now worth only £0.7650, what is the impact on your business profitability?
1. Your costs increase to €13,071.90 in Euro terms (i.e., £10,000/£0.7650) from €11,111.11, an increase of €1,960.79.
2. Your Euro profit falls from €8,888.11 to €6,928.01 a reduction of around 22%.
As you can see, any fluctuations in currency can have serious consequences for your bottom line. Be prepared.