Fluctuations in the value of Naira affects all businesses, Naira is the legal tender used in Nigeria. The Nigeria economy is a developing one, this fact would make the Naira fluctuation for a good period of time into the foreseeable future. We can’t do much about it, however, there are measures you can take to manage fluctuations.
Firstly, you need to really understand how Naira volatility affects your business revenues and profits.
For instance, imported goods will normally turn out to be more expensive when the Naira weakens and cheaper when the Naira gets stronger. As basic as the above instance looks, it is just one illustration of a volatile Naira to your business.
Another illustration of the impact of fluctuations of Naira on your business, you could be caught by surprise if you’ve used credit to import from oversea suppliers. On the other hand, if the Naira falls and you’ve already purchased stock, you could benefit from a boost in revenue.
Alternatively, you could lower your prices and remain competitive especially if competitors ordered stock after the currency dropped.
A BOOST FOR EXPORTERS
A fluctuating Naira can be incredibly beneficial to exporters since Nigeria is part of the world economy. A drop in the Naira’s worth implies exporters can reliably generate income in stronger foreign currencies while still paying costs like rent, utilities, and labor in Naira. Irrespective of your business type, your cash flow should ideally be able to accommodate 10-15% fluctuations in the value of the Naira.
The effect of an unpredictable Naira isn’t restricted to simply importers and exporters:
- Currency volatility may also scare off foreign investors.
- Maintaining equipment can be particularly costly when the Naira falls, especially if the equipment was brought in from overseas.
- Monthly subscription costs for international services, like cloud software, are also impacted by currency changes.
- It can reduce the profit margin of businesses. For instance, if a company is headquartered in London and one of its branches in Nigeria, it profits could reduce when converted to pounds sterling.
STEPS TO PROTECT YOUR BUSINESS
Understanding the impact that a fluctuating Naira has on your business gives you a chance to set up possibilities to protect yourself. Here are a few thoughts:
- Go local: Try to discover suitable local substitutes for your imported merchandise or services.
- Increase exports: Take advantage of stronger international currencies by looking for opportunities to export your product, service, or skills.
- Use forecasting and planning software: Your accounting software can provide insight into how changes in currency value have impacted on your profits and margins. Use these insights to plan for significant changes.
- Choose the right payments provider: If you accept international credit card payments, find an account provider that offers the best currency conversions and transaction fees.
- Currency hedging: Mitigate risks by entering contracts that let you manage the impact of changing currencies, like paying upfront for a 12-month subscription.
While currency volatilities affect all businesses, it’s not in every case terrible. There are approaches to make up for a more fragile Naira and ways to mitigate the dangers of a drop in value.
REFERENCE: Sage South Africa