Sunday, October 13, 2024
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How you can protect your business against a fluctuating Canadian dollar

The recent decline of the Canadian dollar has sent markets, investors and commentators in a bit of a tailspin. We all know exporters are jumping for joy and importers are worried about elevated costs, but if your business involves exporting services in the areas such as advertising, marketing or digital media, what do currency fluctuations mean for you? They mean a lot.

In fact, it’s a terrific opportunity to grow your business within Canada, south of the border and the rest of the world. Here are a few tips to help you start minimizing the heart palpitations you feel every time you hear about a spike or drop in the Canadian dollar (and let’s be honest, it’s going to happen, more often than not, many times over).

Make an important business decision

If you’re exporting your services to the US, anytime the Canadian dollar falls against the greenback, the profit margins for your services all of a sudden go up, almost like magic. Or in reality, because your costs in Canadian dollars have remained the same while you get paid in US dollars. You could do absolutely nothing different and you’d still end up with more money at the end of the day.

However, if you’re looking to grow your business and increase your customer base, now may be the time to consider lowering your prices. When you lower your prices you become more competitive in the marketplace and (hopefully) improve your market share. Increasing your customer base at the sake of slightly lower profit margins is a business decision you might want to consider.

The U.S. remains our biggest trading partner, but according to a recent discussion paper entitled “Canadian Non-Energy Exports: Past Performance and Future Prospects” published by The Bank of Canada “The share of U.S non-energy imports coming from Canada has fallen by about 6 percentage points since 2000 to 11.4% in 2013, and roughly 30% of this decline has occurred since 2008. This implies that in aggregate we are losing out to other exporters in the U.S. market.”

Exporters have long been under pressure to diversify their markets particularly into faster growing economies like China and India. That remains the case, but with a weaker Canadian dollar against the US dollar, we can start clawing back some of our U.S. market share.

Sell to your neighbours

Businesses in Canada that were at one time outsourcing their needs to companies in the U.S. when the Canadian dollar was at par are going to be looking to save some money. Start knocking on your neighbour’s door and showing them the products you offer at a far more competitive price.

Sell to the world

The beauty of selling services is that there’s no boat your product has to be shipped on. Start looking at emerging markets like China and India as possible places to expand your business. Check out this great Inc post on how to expand your small business overseas.

And while the Canadian dollar has fallen against the greenback, so has the euro, which makes Europe an attractive market to break into.

Hedge, hedge, hedge

Whether your company uses a natural hedge or financial hedging strategies, having a formal currency risk management strategy is key to managing your company’s currency exposure. Natural hedges include: matching expenses incurred in a foreign currency to earnings in that currency, changing product prices to reflect changes in the value of the Canadian dollar and invoicing foreign buyers in Canadian dollars. Financial hedging includes: purchasing foreign exchange forward contracts and purchasing currency options. Talk to your bank or a consultant that can walk you through the various options open to you and your business.

Knowledge is power

If you’ve been hesitant in the past to create a formal currency risk management approach for your business, you’re not alone. According to a survey conducted by Export Development Canada entitled, The Currency Risk Management Practices of Canadian Firms only “17% of respondents had policies in place for managing corporate foreign exchange risks.”

Two-thirds of the firms surveyed by the EDC admitted that they should improve how they manage currency risk, but a lack of information and resources deters companies, whether B2B or B2C, from actually doing it. Put some time and effort into figuring out what makes the most sense for your company and its bottom line. Currency fluctuations can be scary, but with the right approach you can make them work for your business rather than against.

 Flickr photo via Jamie McAffery

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Kareen Madian
Kareen Madian
Kareen Madian started her business journalism career as an intern at CNBC. As the Web Editor for MoneySense.ca and Senior Web Editor for CanadianBusiness.com she created and produced content on all matters of business related news. Whether it be personal finance, daily market activity or interviews with some of Canada’s top CEOs, Kareen’s desire to make business news exciting and entertaining for her readers is always her top priority. Kareen is based in Toronto, and in her spare time she enjoys helping the Canadian economy by shopping for shoes. Find her on Twitter here

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