SMEs fail to protect against currency fluctuations: Report

A new survey reveals 60% of Australian businesses say at least a quarter of their business has an international focus, yet only 39% have a strategy in place to protect themselves against the fluctuating Australian dollar.

American Express FX International Payments recently surveyed 500 Australian small business owners, in addition to 1,000 small business owners in the United States and the United Kingdom.

A total of 62% of Australian firms are concerned about the impact of currency fluctuations on their business, compared with 49% in the UK and 40% in the US.

Even though UK and US-based businesses are less concerned about their respective currencies, 55% of companies have hedging in place, compared to less than 40% in Australia.

According to the survey, around a third of Australian companies don’t believe they conduct enough international business to justify the exercise, while a quarter believe managing risk is “too big a hassle”.

But according to American Express spokesperson Paul Norwood, the most common reason is that the issue of foreign exchange risk has simply not been considered.

“It’s definitely a concern. However big or small you are, if you are in international trade, you are going to be impacted by the currency you trade in,” Norwood says.

Norwood says the Australian dollar should be at the forefront of business owners’ minds.

“Every 15 minutes, no matter what media you’re looking at, you’re going to get an update on where the Australian dollar is… It’s top of mind and needs to be top of mind for businesses that have trade exposure,” he says.

According to the survey, 76% of businesses have not lost confidence in international trade as a result of the global financial crisis, while 22% are seeking to expand their international efforts.

The latest Dun & Bradstreet business expectations survey shows one in four executives believe the local currency’s strength is positive for their business, against 24% who say it is negative.

Damien Karmelich, Dun & Bradstreet director of corporate affairs, says a greater number of Australian businesses import from overseas than export.

“Exporters have tended to be the focus but lots more businesses benefit from a strong Australian dollar,” Karmelich says.

Norwood says while the appreciation of the Australian dollar may be “perfect” for importers, it is a concern for exporters, urging small business owners to research their options.

“What we have been doing for a long time is getting out and discussing with as many businesses as possible what options are available to them that actually protects their profit margin or their revenue streams,” Norwood says.

Norwood says one option for businesses is to forward exchange contracts, which are set up through a bank and lock in the future price for their currency, removing the risk of volatility.