Since the EU referendum, the pound has fallen from almost $1.50 against the dollar to around $1.22 – a drop of 18%. This is great news for businesses outside of the UK buying UK products, but many SMEs in the UK are feeling the effect as the price of importing and manufacturing rises. However for others it’s having a positive effect, with customers abroad taking advantage of the exchange rate to buy more products and services.
With no Brexit resolution currently in sight, it’s vital for companies to think about how it will affect their long-term strategies – whether that means negotiating with suppliers, changing prices, or concentrating efforts on exporting to new markets.
We spoke to three Virgin StartUp-funded businesses about how the drop in sterling will have an effect on them.
The startup doing social good – Saint Luke
Tessa Holladay is the founder of Saint Luke, a premium travel-bag brand with an ethical cause – each bag provides clean water for up to 40 people for five years.
“For Saint Luke, the fall in sterling has caused significant strains on our cash flow,” says Tessa. “Although we have experienced a slight increase in sales from abroad, our overseas production costs have skyrocketed, which has really squeezed our margins. Cash flow is crucial when you’re a startup, so this has created a real strain on the company.”
The startup with export ambitions – Nom Noms World Food
Lisa Sohanpal is the co-founder of Nom Noms World Food, a healthy ready-meal business bringing international tastes to children and adults.
“The Brexit announcement has not impacted Nom Noms World Food’s export ambitions into Europe - in fact it has created a favourable opportunity for our buyers,” says Lisa. “We ensured our prices remained in GBP rather than in Euros as our payments are all fixed with our producer in GBP. We didn’t want to be affected by any fluctuations in currency exchange rates starting out. It may well change in the future as we grow, but for now this strategic decision was a safe bet for our business.”
The startup manufacturing abroad - Mous
James Griffith is the co-founder of Mous – phone cases that also double as headphone holders, preventing them for getting tangled or broken.
“As we manufacture in China, unfortunately Brexit and the fall in sterling was a nasty sting! We had been saving up to invest a lot in machinery in China, and were doing it in - you guessed it - pounds. In the space of a week we lost £10k.
“We have learnt from it though. We now use World First – a currency exchange and international payments company - to hedge our bets and keep half of our cash in USD. We have found it a really useful alternative to banks.
“We used to sell our product online to the US, take the payment in sterling, then convert it to dollars. Madness. We’ve definitely changed the way we handle our money in order to get the best value.”
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