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Hedge Your Business… Hedge Your Success!

Written by Contributor, on 11th Sep 2017. Posted in Financial

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by Matt Di Vincere

As markets get to move and as volatility bumps in: new paradigms emerge. Some would make fortunes while others would end up totally broke. Some would see their businesses flourish, while others would get bankrupt. Some would feel comfortable and able, while others would feel helpless and lost. Finally some would get into a virtuous positive cycle while others into a negative vicious one.

Between one side and the other, a very narrow edge marks the limit. On the right side of the edge you are a hero, on the wrong side you get to be a zero. So you might ask yourself: how can I be on the right side? How can my business sustain any market conditions? How can I be successful on the long term?

If that is the case and if these questions are popping into your mind then there is a great news for you: you will have your answers today!

One step at a time…

Running a business requires a whole set of skills and a strong knowledge of the industry where one operates. As a matter of fact, most successful business owners and entrepreneurs acknowledge that the key factor for their success lies in their ability to do things better than others. Be it operational excellence, product differentiation or market innovation, entrepreneurs will seek to generate wealth by focusing on a key value proposition.

This being said, and in order to be able to develop the value proposition that you are seeking, it is necessary to focus on what you do. To illustrate with simple examples, a Formula One Driver has to totally focus in order to win the race. He cannot drive, while talking to his wife on the phone. In the same way, a doctor will dedicate all his intellect in order to understand his patients’ health conditions and provide adequate solutions. It would be quite unusual for a surgeon to listen to hard rock music while in the middle of a heart transplant.

So we are saying all this in order to explain the following rule: in order to succeed in business, you need to focus on what you do and get rid of anything that would whether take your attention away and potentially negatively impact your performance.

Political events, market sentiments and economic indicators are all elements that can generate noise for your business. More specifically, and if you happen to do business across various countries, Foreign Exchange Rate movements represent a massive source of risk and volatility could seriously damage any entrepreneurial effort. It goes without saying that the most recent example for that, which has a massive impact on most Ireland-based business is the Brexit, which shook the pound and the Irish-British landscape forever.

Luckily, you do not have to incur Forex volatility and you can protect your business – you can hedge through a variety of rather simple tools. And no, it’s not too late just because you haven’t done that a year ago before the referendum vote.

A hedge at all times…

Basically hedging consists in eliminating all unnecessary risks that could jeopardize your business. On one side, we can mention operational hedging which ranges from buying fire extinctors, to installing anti-virus software on your computers and remotely controlling your employees.

On the other side, lies what we call financial hedging. This consists in getting rid of financial risks that could harm your financial performance. Let’s assume you are selling Irish-made products in the UK. As the pound depreciates as it has done tremendously over the past year and a half, you are facing FX risk as you still buy your products in Euro and earn less Euros for selling them.  If the Euro appreciates even further, you may reach a point where it is not profitable for you to sell in the UK.

You could also be an Irish expat who resides in the UK, earning UK salary, and as the pound depreciates against the Euro, your GBP savings are less meaningful back home (while you could be using the Euros you saved back home to buy cheaper-than-ever-before property in the UK).

How can you hedge and protect yourself in these two scenarios?

You obviously need to tap into any financial instruments that will allow you to be indifferent to the constant fluctuations in the EURGBP. You want to be in a position in which if the Pound further depreciates, it doesn’t affect you or your business. If the Euro depreciates against the Sterling, the hedging will remove all the potential upside, making it a zero-sum game.

In these scenarios, once you are hedged by making the adequate bets, you can focus on your core competence while optimizing your efforts. It could be developing your sales potential, hiring talent or simply minimizing operational costs.  At this point in time and once the hedges are executed, you run no more Forex Risk and get have stronger control over your businesses’ destiny.

Now all this sounds great but you still do not necessarily know neither when nor how to hedge. You might still ask yourself questions such as: How can I hedge? How can I protect my business? Who can help me?  Who can tell me when to hedge and when not to hedge?

Never Alone

There is a huge selection of money transfer companies that will provide free guidance on FX hedging. All you have to do is sign up with the right company such as London-based Moneycorp and the process from there will be very straightforward. You don’t need to become an expert on currencies or get familiarised with every hedging tool in existence. All you have to do is provide all the information they require to give you solid advice.

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