Beyond increased expenses for individuals, the record fall in Naira against the greenback in the foreign exchange (FX) market has also made it difficult for business owners who are faced with difficulty of repaying foreign currency debts as costs of servicing dollar denominated loans rise.
While experts have projected an increase in loan defaults this year due to unstable naira at the foreign exchange (FX) market, the recent slide in the local currency has fuelled inflation, causing a decline in entrepreneurs’ purchasing power, and increasing costs of production.
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Recent survey by BusinessDay showed that entrepreneurs’ expenses have increased by at least 60 percent since last year. For example, Sherifat, a luxury perfume entrepreneur in Lagos said that she now needs about N1.2 million for the worth of goods she could buy with N700,000 in December 2023.
As cost-of-living crisis bits, experts have also suggested a few ways to protect your business from the falling naira and rising rate of inflation. Here are five best strategies to protect your business and stay afloat.
Adopt good debt management strategy
Edmund Otaigbe, Group Head, Credits, Documentation and Administration and Governance of Access Bank Plc said that business owners must adopt a good debt management strategy to stay afloat.
“A good debt management strategy helps create a sense of financial stability and allows you peace of mind because anxiety comes from an inability to meet the financial goals you have. Corporations should also navigate the different landmines around lending and foreign currency exposures,” he said at the Firstcentral Credit Buruea virtual conference in Lagos.
He also said that businesses’ survival depends on their openness and ability to communicate their situation to financial institutions.
“In terms of lending, your level of openness determines the support you get from financial institutions. Communicating your situation to your financial institution, and making your lending partner in sync with you is extremely important,” he said.
Improve your operational efficiency
Streamlining your business processes to eliminate waste, and saving every penny contributes to entrepreneurs’ resilience, Olagoke Balogun, the CEO of SoFreshng said in a post on X.
In a recent post on their website, AxA Mansard also said that entrepreneurs should leverage technology as a strategy to stay afloat. This, they noted could include investing in new technologies to improve operations and make business more efficient.
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Adjust your pricing structures
In times like this, there is need to regularly evaluate the impact of currency movements on pricing structures, and adjust pricing to reflect changes in costs and local market dynamics to maintain competitiveness.
However, identifying savings areas without compromising on quality is important, Balogun said. He also noted the importance of adapting to customers’ changing preferences.
“Consumers are adjusting their spending habits. Understand these shifts and pivot your offerings accordingly. For example, SOFreshng successfully launched lower-priced drinks about a year ago to meet evolving demands and customer preferences,” he stated.
Diversify your investment
Another strategy businesses can use to protect themselves from the falling Naira is diversifying their investments, AxA Mansard said.
“Businesses should not limit themselves to seeking finance in the Nigerian market. Instead, they should look to other markets, such as the Asian market, as these can provide a welcome reprieve from the challenges of the Nigerian economy,” they noted, while also recommending that entrepreneurs invest in assets that preserve capital like real estate.
“Investing in hard assets can also be a useful strategy for protecting your business. This strategy involves purchasing tangible assets such as real estate and gold, which can be sold off in the event of a crisis or devaluation,” AxA Mansard stated.
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Prioritise cash flow
“Understand the impact of exchange rate fluctuations on your cash flow, liquidity, and working capital requirements to identify potential gaps and allow for proactive financial planning,” Good FX, an international payments platform noted in their recent LinkedIn post. They also see the need for entrepreneurs to prioritise cash flow “as staying afloat should be their priority in this period”.
