Guest Commentator: Robert Norton, Director, National Accounts, Corpay
What are the benefits for small and mid-sized businesses to manage their currency risk?
As global markets continue to integrate, businesses are expanding into foreign markets that might have been unattainable or unprofitable a short time ago. While this is great from a top-line revenue standpoint, it also brings another layer of risk to the business’s bottom line – foreign currency. This risk should not deter corporates from expanding outside of USD, whether organically or through acquisition, but it is important to understand the benefits of implementing an FX hedging program.
Managing currency risks can protect cash flow and profit margins, improve financial budgeting and forecasting, and increase borrowing capacity. It also allows management to better understand how currency fluctuations affect the balance sheet leading to better strategic and tactical decision making.
Most financial management teams would love to achieve these benefits, but it is important to start with a holistic foundation. Understanding overall currency exposure to the firm will help answer the fundamental risk management questions – Should we hedge? How and what should we hedge? Where does this fit in our organizational activities? From there, the firm can identify the goals and objectives of a program which will be imperative to defining success. This could be a quantitative metric (reduce FX G/L, limit EBITDA impacts) or a qualitative goal (leverage technology to minimize manual support within the workflow).
All too frequently, we see companies wait for material FX impact to shock the organization into evaluating risk and hedging. That is like buying home insurance after your house catches fire. Why wait?
Corpay is a member of the Chamber’s Middle Market Action Team (MMAT), a consortium of leaders driving rapid growth in companies with annual revenues between $10 million and $1 billion via targeted programs and strategies.
