Rates of Currency Exchange – Impact on Australian Businesses – Jones Partners

18/12/2013 by Michael Jones

According to a recent report issued by the ASIC the main reason for Corporate insolvencies can be related to ”bad strategic management” It may seem that exchange rate fluctuations are beyond the control of business managers and it is obvious that currency variations have a major contributor on Australian businesses.

If a business relies heavily on sales to overseas customers, a high Australian dollar will cause serious problems.  On the other hand if the business purchasers goods and service from overseas a strong dollar will be a major advantage.  In some cases a minor variation in exchange rate can be the difference between success and failure.

Whilst the exchange rate itself is beyond the control of individual managers, the management of this fluctuation is not.  A good business operator will be watching exchange carefully and looking for opportunities to capitalise on this variation.

If a business is heavily affected by currency fluctuations, management needs to consider its policies carefully surrounding such things as negotiating contracts in Australian dollars to avoid the obvious risk.  On the other hand, with expert knowledge of currency rates, businesses owners can in some circumstances, take advantage of currency fluctuations if the business can choose the timing of its payments, or fixing exchange rate terms in contract negotiations to avoid any major cash flow difficulties and the subsequent need for recovery action.

A major project into the study of Insolvency Trends in Australia is being sponsored by Jones Partners and was introduced by Phil Ruthven, Chairman of IBISWorld at a function held in July 2013. (please see extracts of the attached video). The Jones Partners Economics Report entitled “Collapse, Restructure & Renewal – State of Australia’s Insolvency market” will be issued in early 2014 and will deal with the impact of currency fluctuations of Australian businesses.  This report will be the first study of its kind on the Insolvency Trends in Australia.