Saving on multi-bank charges, and the convenience of getting paid in one currency while paying suppliers in another. These may describe some of the well known benefits associated with having a multicurrency account (MA). But do you know dealing in multiple currencies also carries its own set of challenges?
Small-medium enterprises (SMEs) that use basic accounting software may find massive limitations with its functionalities the moment they expand overseas and are forced to transact in foreign currencies.
The fact that we live in a world of floating currencies further exacerbates the problem, being at the mercy of fluctuating foreign exchange rates. Throw in independent statutory taxes in each country a company operates in, and the nightmare begins. It makes it near impossible to nail down any decent form of accuracy when it comes to essentials like P&L statements and tax computation.
So what’s the solution? For one, always harbor a forward-thinking mindset. Even if you don’t intend on expanding overseas or dealing in multiple currencies anytime soon, it’s still wise to consider purchasing an accounting software that offers you the potential to scale laterally and vertically. Better still, if you can find a software that is already compliant with the tax laws of countries you intend to operate in.
Another issue you may encounter with multiple currencies is the inability to forecast projections accurately. An interest rate hike in a particular country where you get a majority of your supplies would strengthen its currency, leaving you with a significant rise in business costs – notably if you operate on large economies of scale. Conversely, an appreciation of currencies in countries you sell to would improve turnover.
With uncertainty being a new constant in the world’s economy, it is nearly impossible to predict what will happen next. Airlines lock in their fuel costs way in advance to protect themselves against oil price fluctuations. The same may apply for businesses that have an MA. Depending on your relationship with the bank, companies can pre-book a forward exchange rate with their banks.
This though, is still not sufficient.
Forecasting in multiple currencies, even with predefined exchange rates, is something a basic accounting software wouldn’t be able to perform. What you need is the sophistication of an enterprise resource planning (ERP) software integrated with accounting and forecasting abilities. It doesn’t take a genius to realize how such a software may not be the most affordable for any SME looking to take that pivotal expansion leap.
An ERP Solution within Reach
Times have changed. Cloud computing has now given SMEs access to necessary ERP tools, once only afforded by rich multinationals. What’s more, setting up a company-wide system, which at one point would have caused days of disruption, can today be done in a matter of hours.
Sounds too good to be true? Find out more about Deskera’s ERP offerings, and be pleasantly surprised.
Before you proceed, we believe its important that all SME owners be acquainted with what it takes to be absolutely compliant. The authorities may have closed an eye on minor lapses in the past, but when you begin to scale, they’ll definitely take a closer look at you.
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