I was buying dollars at the time. It was the end of 2014.
I was trying to pay my business partner in China like every week about $20,000. I was confused because the rate at which I was able to buy dollars was, as I remembered it, much higher than the rate that had been used for the invoice 30 days earlier.I quickly realized that the USD rate had actually gone up, and within a year it had even gone from 3.03 to 3.70, an increase of 22%.
“Oh my gosh,” I thought at the time. After all, the company earns a few percent on the sale of its basic product and the cost has increased by more than 20% as the dollar has become more expensive. How then do we still function?
I then recalled the signals from accounting that were coming into my consciousness.
They were repeated regularly with the message being: high negative exchange rate differences. I knew the reason for my ignorance – it was not that important. At that time it was all about building a market, a network of customers and increasing revenues, and not to worry about the elements that we have no influence on.
I decided to check and count how much the company was losing.
I defined the task and a colleague who worked with accounting counted how much the company actually lost. Fortunately, it turned out that we earned something, because the purchases of dollars were in continuous mode and the whole 22% appreciation of the dollar did not affect us. However, this was of little comfort to me, because in the end, throughout the year we lost about 135 000 PLN on currency fluctuations!
The loss hurt so much that I imagined what we could buy with that amount: buy another service car, hire two people to develop the market, and winter tires and their cost would not be a topic at all. I felt as if I were Little Red Riding Hood, who, waving a full basket through the woods, realized that there wasn’t much left in the basket because everything just fell out as a result of this recklessness.
I was also angry with myself because I realized that my accountant had told me many times about the negative exchange rate differences, that they affect the profitability and should be taken care of.
I realized that the joyful development of the business through increased sales could not be without managing the risks of that business. After all, the key risk of this company is the change in currency exchange rate over time, because it has a key impact on the profitability of the company. The occurrence of such an unpredictable effect gave me food for thought and made me decide to deal with the subject so that it would not come up again.
I dealt with the topic myself and wanted to solve it on my own. There were two reasons: on the one hand I was so annoyed with myself that I lost and did not feel that I could entrust someone with such a task and on the other hand I was a little embarrassed to boast to anyone.
To be continue…