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Protecting your business from external risks

Capitalise Sep 27, 2022

The new Chancellor’s mini-budget, along with fiscal and economic interventions in other countries around the world, most notably the United States of America, has sent shockwaves through the UK’s trading markets.

Several unusual events, arriving one after the other, have created an economic situation which has never been seen before. The UK was still adjusting to a new way of business after leaving the EU, which was interrupted by the pandemic, closely followed by the war in Ukraine. 

As the government and Bank of England now continue to grapple with the dual challenge of inflation and low growth, stagflation, there is bound to be more activity for some time to come.  

So, what does this mean for UK business owners?  Whilst it will continue to be difficult to predict when interest rates and currencies will change, there are steps which you can take to protect your business from the impact of this general trend.

What does this mean for businesses in the UK? 


Two key areas:


1. Interest rates are rising and predicted to continue to do so.  

  • This will have an immediate impact on any borrowing which has a variable rate as interest will increase
  • For facilities which are due to renew and are on a fixed rate, the new facility is likely to be more expensive


2. Currency markets are not favouring the value of the pound.  This means that:

  • Businesses who import goods, either directly or further up their supply chain, will find prices rise again
  • Those who export goods and services should find their products are more competitive
  • Anyone who purchases goods which are always priced in US dollars (such as oil or other commodities) will also see the prices rise, even if they purchase them in sterling.  This includes the fuel we buy at the local petrol station. 


In early 2022, our Get Fit For Business report found that 21% of UK business leaders were feeling burnt out after the previous two years.  But 75% say that the way their business was able to adapt then boosted their confidence. So this short guide suggests more ideas which you can use as business owners to steer your company through this latest set of challenges.

1. Do you trade in different currencies?


Many businesses now pay or receive money in various currencies, as they trade with suppliers and customers from different countries.  When this becomes a regular occurrence, it is worth considering one of these ideas to reduce your exchange risks:

Agree forward foreign exchange contracts so that your rates are known for a fixed term.  The timing of this contract will bring risk, but it will also bring certainty.

Hedge your exchange risk by using the currency for an opposite transaction. For example, if you sell to one country, aim to find a local supplier where you can also buy in that same currency.

Open business bank accounts in different currencies and receive funds and make payments from that currency directly.  This will also reduce fees by eliminating the need to make a currency exchange for each transaction. 


2. Review your working capital needs


As costs increase, you will find that your access to free cash becomes tighter, limiting your ability to pay suppliers and tax bills on time or to invest in new business opportunities. This becomes a stressful situation which can distract you from focusing on growing your business. 

By preparing financial projections and forecasts you can predict your cashflow trends in advance.  

This gives you time to put a plan in place to release some more cash when it will be required, either through internal working capital adjustments with suppliers and customers, or by obtaining some external facilities. 

3. Consider exporting your products


As the value of the pound weakens against some other currencies, British products become more competitive to overseas’ buyers and this can bring other markets for your goods and services. 

If you have never investigated how to export, take advice from an international trade adviser at your local office of the Department for International Trade.  You can also obtain training and more information by joining the Institute of Export and International Trade. 

You can listen to our recent interview with the Director General, Marco Forgione, here


4. Sharpen your credit score


If you want to obtain the best payment terms from your suppliers or the most attractive lending rates from funders, you should ensure your credit score is as strong as it can be, well in advance of any discussions.  

Speak to your accountant about how they can help you understand and improve your credit score, and help you put the best foot forward when it comes to your business.

5. Choosing the right lending products


Many traditional facilities, such as overdrafts, will charge interest on a variable rate. As soon as the Bank of England base rate increases, your interest costs will increase. 

Therefore, now may be an appropriate time for you to consider a different lending product with a fixed rate instead.  This will ensure you have certainty over your future outgoings. 

With a network of 100+ lenders, and a range of finance products which can offer fixed rates, such as asset finance, sale and leaseback, term loans and the government backed Recovery Loan Scheme (RLS), you may find a product which suits all your needs. 

Sign up for Capitalise for business for free and match with the right funding for your business. As well as credit insights that give you the data you need to get ahead. 


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