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Steer clear of any risky business

One year ago, no one expected that 12 months later sterling would be at its weakest point since 1997.

There are few international industries in the UK escaping the effects of this, but for retailers, wholesalers and manufacturers the consequences are worse.

For years we relied on domestic demand for growth and expected it to continue. We are now entering a period of slow UK growth and the next two years could prove to be challenging.

There is some good news – commodity prices have started to fall and businesses that have already planned to mitigate the impact of rising costs will be in a better position to tackle 2009’s challenges.

Those who are not planning to fix currency rates now are exposing their business to chance and this is not the time to be taking extra risks.

Businesses should be planning how to stabilise or grow the business for the next two years. There are three questions they should ask.

First, what would the impact of a 10% to 15% fall in sales be on the business? Once the impact of a fall has been calculated, then actions can be planned to reduce the effect.
Second, what can be done to minimise the exposure of fluctuating currencies? There are ways to remove or reduce exposure to adverse currency rates, while still allowing participation in favourable moves in the spot market.

Lastly, how can the business grow despite slow UK growth? The answer is to have an international outlook and be internet-friendly.

Be honest about the tough choices you need to make. The winners over the next two years will be those which are considering short-term and long-term strategies now.

Jane Galvin is industry director at Barclays Commercial Banking

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