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As the pound touches new lows non-export based small businesses are coming under increased pressure.
As sterling continues its decline against the US dollar, hitting a 12-year low yesterday, UK foreign exchange broker World First has calculated that, for every 1 cent fall in the sterling-dollar exchange rate, UK SMEs lose out to the tune of £8.4m, as up to 50 per cent of UK SMEs involved in importing fail to hedge their foreign exchange exposures.
Failing to hedge against movements in exchange rates can mean that the value of transactions can be hit dramatically, reducing both turnover and profit.
With some of the recent sharp movements seen in rates, what might have been profitable business for a company just weeks ago can rapidly become loss-making.
Alex Sullivan, Head of Corporate Foreign Exchange at World First, explains: “Much has been made of the Bank of England’s 1.5% rate cut and Friday’s shocking US employment figures. However, despite what ought to have been a big negative for the dollar, sterling continues to weaken, taking many companies by surprise.
“Although we are bullish for sterling in the long term we believe that the pound may weaken further against the dollar in the coming weeks and many market commentators are now anticipating a push below $1.50 with some predicting a rate as low as $1.40 to the £1.
“UK SMEs are still failing to take the measures necessary to protect themselves against the risk of further significant falls in the value of sterling – and in doing so are gambling with the future of their companies. With the recession now well and truly kicking in, any SME that isn’t protected against further weakness in the pound may be heading for disaster.
“Importers can currently hedge against the dollar at $1.50 and still benefit from the upside at anything up to $1.70. Failing to consider exchange rate risks can be tantamount to commercial suicide.”
Government not doing enough
Meanwhile the UK government has been accused of failing small businesses.
More than 77 per cent of small businesses don’t think the UK government is doing enough to help them through the current economic crisis, according to a survey of 2000 SMEs by cmypitch.com, a social network for small business.
More help with funding, such as doing more to make banks lend to small businesses, was the most common request to government, with 37 per cent of small businesses surveyed saying the government should do more to help.
Suggestions included: setting up central funds to give temporary loans to SMEs; doing more to help SMEs find funding; and forcing banks to pass on interest rates cuts on a regular basis.
Tax cuts for SMEs was the second most common plea to government – one in four (24 per cent) of businesses surveyed would like to see tax cuts to help growth. The top suggestions included reducing employers’ National Insurance burden and VAT relief.
Just over half (52 per cent) of small businesses think the current economic crisis and a lack of funding will have a negative impact on their business. Thirty-four per cent expect to see a drop in sales over the next six to 12 months.
Nearly half (48.7 per cent) of those surveyed are looking for external funding to help them grow, and nearly 80 per cent of those said that they are finding this difficult in the current environment. When asked what would happen to them if they don’t secure funding, just under 43 per cent said their businesses would not grow. Nearly nine per cent said that they would have to wind up their business if they couldn’t get financial help.
Emmett Kilduff, founder and CEO of cmypitch.com says: “There’s been a lot of talk from all parties on what government should be doing to support small businesses. This shows very clearly that more help is needed, in the form of tax breaks or financial support. Decisive action is required, or small businesses will suffer.”
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