How the weakened pound affects agencies
With the pound struggling against other major currencies, I thought I would outline how I see it affecting UK agency and consultancy businesses.
Where the business has overseas clients that do not pay in pounds, exchange gains should be expected on invoices raised when the pound was stronger and payment is received when the pound is weaker. A weaker pound is favourable when billing in other currencies as more pounds are converted from the overseas currency. When a client outside the UK is paying in pounds, the weaker pound will be favourable to the client and may encourage increased spend with you as it makes your services cheaper to them. Any surplus currency sold whilst the pound is weak will mean more pound sterling can be purchased and help with cash flow.
Computer equipment is likely to get more expensive due to the weaker pound increasing costs in the supply chain. If there are plans to purchase computer equipment, it may make sense to bring it forward to avoid future increased costs if cash flow allows. Another incentive to bringing the computer equipment purchase forward is the enhanced corporation tax relief available until 31 March 2023 through the ‘super deduction’ capital allowance.
Some overheads are typically incurred in other currencies, an example is software often being charged in US dollars. This will increase the cost to the business so it could be worth reviewing expenditure in other currencies. If the weak pound continues, inflation will increase at an even faster rate. To defer increased costs, prices could be locked in with fixed-term contracts or prepaying for services with an annual or longer-term subscription.
Please get in touch if you would like to discuss how we can assist you when working with overseas businesses and dealing with overseas currencies.