How understanding FX markets can provide the perfect platform for a successful growth strategy

For any travel business with the objective of expanding their operations in 2024, the foundation to achieve this will always be smart and robust financial planning. As CFOs and business owners will attest, it never goes exactly to plan, which means an agile approach that covers all eventualities is needed to ensure that growth plans remain on course with the cash available when needed to fund them.

The somewhat controllable drivers for growth would be the definition of a clear sales strategy, investment and a solid cash flow forecast that provide the outline of the capabilities for growth. However, perhaps what is even more crucial is the understanding of what can go wrong and the impact this can have on your business. Whilst some factors remain within your control, unfortunately many of them are not. For example, Brexit was a stark reminder that geo-political posturing can lead to damaging and thoroughly undeserved rise in costs and bureaucracy for businesses. Then there was the pandemic, and now the UK has recently seen unimaginable inflation and subsequent interest rate hikes which have made a huge dent in the population’s spending power. The pain didn’t stop there, because these unique and unconnected events all impacted the strength of the pound against other major currencies, which creates a second wave of challenges for businesses that transact internationally.

None of these factors can be planned for specifically, but your business can still calculate the tolerance it would have for circumstances which greatly impact costs and demand. For travel businesses, the lasting impact on currency markets can be the source of significant concern. Moving markets create almost permanent uncertainty over the costs of foreign invoices and in a particularly price-sensitive market like travel, this can impact either profit, sales or both to a degree that disrupts growth plans.

More and more businesses have recognised this and are implementing currency risk management into their wider financial planning models, which firstly means they are more aware of the risks of volatility and how much their business can absorb, but also creates mechanisms in which protect them from the big events that cause significant market swings. For businesses with a higher risk appetite, FX strategies can also provide opportunities to add value to their bottom line through more complex models such as active or blended hedging.

Even with a strong sales strategy that is succeeding, growth can still be interrupted if your business does not have the liquidity position required to continue investing and creating opportunities. A lag in invoice settlement can be a nuisance at the best of times, but for ambitious businesses attempting to take it to the next level, it can become a blocker. In the current climate, SMEs are finding it difficult to find affordable lending facilities that can provide finance to fuel their growth plans but in reality, this is the ideal solution for businesses that already have a steady flow of business. Invoice or supplier financing is a simple and relatively economical way for businesses to remain on track with their financial objectives and eliminate the threat of cash-flow frustrations, ensure sales can keep up with demand and new opportunities can be maximised.

The most successful businesses this year will be those who not only have strong and measurable objectives, but also have a deep understanding of the major threats that can come into play and how to either combat or work around them. Make ‘flexibility’ the theme for your business in 2024, because with elections on both side of the Atlantic, the contrasting global inflation fighting strategies and ongoing major geo-political conflicts, businesses will need it. The phrase “the only certain thing is uncertainty” hasn’t looked more relevant than right now.