Revisit your business plan
Are your objectives flexible enough to withstand the current headwinds? Take a good look at your existing business strategy and consider whether it still applies. Assess the type and levels of your debt.
Businesses should be prepared for every eventuality and aware of the risks of overextension when borrowing in an environment conducive to rising rates. With an increase in interest rates, businesses with company credit cards and existing loans can have higher interest payments, less disposable income and bigger overheads. In some cases, borrowers may find themselves paying off the interest only, rather than the loan itself.
Increased interest rates could also see businesses opting for shorter-term loans tied to cash flow and presenting greater risks, potentially leading to further negative impacts.
Watch the value of the pound
Higher interest rates can increase the value of currency. If businesses have income streams in foreign currencies, then rising interest rates, and in turn rising sterling, will affect a company’s profits.
Forward contracts can be used to mitigate the risk of exchange-rate differences where your business has foreign currency transactions.
Keep an eye on yoursupply chain
If prices increase, or payment terms and accounts payable change, companies need to be aware that while they might be relatively insulated, their key partners, ie their customers and their suppliers, might not.
Even if your company has no funding affected by interest rate changes, your suppliers may do, and your costs may increase to cover higher interest charges. Having contracts in place to fix supply prices can mitigate this risk.
Nevertheless, interest rate rises can force companies’ hands, with inflation driving up the pricing of manufacturing, distribution, and business services, which then trickles down the business supply chain.
