Small Businesses can use a Strong Canadian Dollar in their Favour

Courtesy of Flickr

Currency fluctuation is difficult for some businesses to manage, but it can make work for you

As retailers, we are all subjected to foreign exchange, whether we realize it or not. As retailers, foreign exchange does not affect our sales like it does with manufacturers and exporters, instead if affects us on the other side – our purchasing.

Whether we realize it or not, our cost of goods are directly influenced by the exchange rate of the day. This is obvious if we’re purchasing goods out of the U.S. or in other countries. However, even if we’re only selling Canadian goods to sell in our Canadian stores, we’re still being affected, because Canadian manufacturers in large part set their prices based on what they can sell their products for in other markets, including the U.S. And that demand is influenced a great deal by the exchange rate of the day. I know as a retailer, I enjoy a strong Canadian dollar, even though it’s bad for the manufacturing sectors and most of the Canadian economy in general.

So as a businessperson and a retailer, we need to be concerned about foreign exchange because it does affect our business and our profitability. You can check out the Bank of Canada site for current exchange rates. There are also sites such as RatesFX, which tracks Canadian dollar predictions and volatility data. You can also talk to your bank about hedging opportunities if you purchase a lot of goods from outside Canada.

Foreign exchange can have a huge impact on a business. Only a few of years ago, when the Canadian dollar strengthened, my business was making an additional $10,000 to $25,000 per year because of the volatility in the dollar. However things can go the other way, quickly. In 2008, between placing our Christmas purchasing orders in January, when the dollar was on par with the U.S. dollar, and paying for them in November and December, foreign exchange cost me about 26%, or in our case $52,000 came OFF our bottom line.

This year, I’m loving our strengthening dollar. We purchased our Christmas goods at a 25% exchange rate assumption. And if this trend continues, I should be paying less than 5-10% exchange when my bills are due in November/December.

Should I hedge my U.S. purchases? My controller certainly thinks so. However for now, I’m taking the risk. And for this year at least, I am hopeful that it will work in my favour.

For all of us, foreign exchange does affect our business, directly or indirectly, making FX followers out of us all.

~Andy

• XE Conversion Calculator
• RBC Currency Forecasts (page 7 PDF)
• How Foreign Currencies Affect You