by Real Business - Thursday, 30th August 2007

Give me the good stuff! Get advice on hedging from your bank. Try to buy and sell in the same currency. Move staff to the United States. Invoice in sterling to transfer risk to the client. Demand faster payment to compensate for currency losses.

To the average man in the street, a dollar exchange rate approaching two-to-one means only one topic of conversation: how cheap it is to take the kids to Disney. But to many business owners – especially those exporting to our American cousins – the weakness of the dollar spells possible disaster. Your prices seem to go up each morning before you get out of bed.

So what can you do to protect your business? First port of call, your bank manager. Ask him how the bank can assist with hedging against currency movements. If you’re expecting a large sum from a customer in the US and reckon that the rate will move against you, book the dollars forward, so at least you’re assured of a certain sterling amount. Barclays have teams of people who spend their day assisting Brits selling to the States and other dollar-denominated countries – ask to speak to an export specialist.

Paul Luen is managing director of Martek Marine, a fast-growing £3.5m- sales company that sells shipping-safety products throughout the world. (Only 25 per cent of revenue is UK-based.) “Strategies we adopted include fixing prices in dollars, especially for purchase of components from China, and matching purchases and sales in each currency,” says Luen, whose company won an international sales award at the Growing Business Awards. So if you’re selling in dollars, aim to purchase in that currency too.

And don’t stop at buying products in dollars. Luen buys services in that currency too, having relocated staff to work in America – from Martek’s Rotherham base! It’s an idea worth considering if you do loads of business in the States, with office staff in the UK struggling to cope with the time difference.

At the British Chamber of Commerce economic adviser David Kern admits that hedging against export receipts comes at a cost beyond many small businesses. But, he says, member firms importing from dollar-denominated countries are securing savings. So a tip is to buy as many raw materials from the States or in US dollars as possible.

James Shulman, a city trader who watches the dollar carefully, is setting up Magnum Capital, a new hedge fund. “Sterling-dollar exchange rates are cyclical, and likely to remain around the $2 level for some considerable time,” he predicts. Shulman has seen the dollar weaken for two years, but recognises a change for the worse since the US presidential elections.

Aftershock, a fast-expanding London-based womenswear company with global ambitions, bucked the trend by expanding its exports by over 50 per cent in 12 months, and also picked up a 2004 export award in the process. (Half of its turnover comes from abroad.) So how has Hiro Harjani, who founded the company, protected himself against global currency fluctuations? “We have concentrated on efficiency by supplying shipments directly from India to the USA without breaking bulk shipments in the UK”.

Harjani is also building up business in countries where the dollar, and dollar-chasing Asian currencies doesn’t come into play. “We are opening more sales points in Europe, so we will sell more in Madrid, Spain, Greece, and so on, balancing our US dollar sales.” And he agrees with Martek’s Luen that it’s sensible to have more staff on the ground in overseas territories: “We have employed two more staff in the States to handle enquiries and sales, reducing the workload here and the costs.”

But don’t assume that your sales prices have to stay the same – or reduce – to remain competitive. Aftershock had to increase its prices slightly in other territories to offset the weakening dollar. And consider invoicing clients in sterling, letting them bear the risk of fluctuating rates. There will be many costs that you can’t control – interest rates and NIC percentages, as well as exchange rates – so look at everything that is within your grasp, including sales prices.

Several final pieces of advice: if you’re powerless to protect against dollar exchange rates, look at those aspects of your business that you can control – staff numbers, office overheads, that sort of thing. And review your terms of trade: if you’ll get less from your US customers, at least try to receive it sooner!

Simon Walters is a director of FD Solutions, who operate as part-time finance directors to small and medium-sized businesses. FD Solutions is a member of the BDO Stoy Hayward Alliance. Simon can be contacted on 07714 237523 or at simon@fdsolutionsltd.co.uk

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