UK SMEs losing billions through financial market fluctuations
British SMEs lost more than £10 billion in the last year as a result of currency movements, according to a new white paper.
The work from Ebury – titled 5 Major Foreign Exchange Risks –highlights how volatility in foreign exchange markets and a lack of local market knowledge is impacting upon UK businesses.
A lack of suitable risk management relating to currency exposure is costing the SMEs, as they look to new markets without sufficient preparation.
Emerging market currencies can be particularly volatile, while risks are associated with transferring large sums of money internationally.
The figure of more than £10 billion applies to the last 12 months, showing that losses are occurring despite recovering economic conditions.
Growth overseas is seen as a great way to expand a business, especially one that is relatively small in size.
However, a number of risks also exist if financial issues are not given prior consideration and some of these can result in large costs for the firms concerned.
The white paper points to a lack of local market knowledge as a key factor, suggesting that many UK-based SMEs fail to adapt to the risks associated with expansion.
In some instances, this could lead to cash flow issues and even the prospect of business insolvency – although acting rapidly can usually reduce the severity of the situation.
The past year has seen a lull in the foreign exchange market but this has instilled a false sense of security, meaning many SMEs have failed to cover their risks.
This is particularly the case in emerging markets, where much time and effort is required to ensure market entry runs smoothly.
Entering unfamiliar markets should be done only when resources have been invested to fully understand the new market – thereby mitigating against risk.
SMEs that do so then enable themselves to take advantage of the opportunities that might present themselves, gaining a competitive edge in doing so.
By Phil Smith