Sherene Headley was in for a big surprise when she checked her manufacturer’s invoice in China last fall.
The founder and CEO of Mokkah, a London-based company that makes plus size women’s shoes, had ordered 57 pairs of black suede boots to sell to customers.
But the manufacturer’s bill, which was quoted in US dollars, was about 20% more expensive than Ms. Headley had expected.
When the British pound fell to a record low against the US dollar in September, the purchasing power of her fledgling company abroad fell with it. The fall in the pound makes buying goods valued in dollars much more expensive.
This can come as a shock to any company; for a new business it can be crippling.
“Many small businesses have quite slim margins when trying to get their business to market,” says Ms. Headley. “So I knew from the start that I could never compete on the high street [on price] because we just don’t have the resources to do that.”
Mokkah was a lightweight bootstrap company from the start. Through Crowdfunder, the fundraising platform, Ms Headley raised £13,000 to start the business in June 2020.
Thanks to the advice of her business mentor, Ms. Headley prices her products high enough to guard against unexpected cost increases.
“Luckily for me, who is new to the business, I was able to take a few steps to ensure my UK sales rate was okay despite this increased conversion,” says Ms Headley.
“It would still give me the space to be able to say, ‘This is what I could reconnect to get another pair of shoes, or make another pattern.'”
While the pound has stabilized since September, it is still historically low against the US dollar.
More from the BBC series looking at trade from an international perspective.
You might think this would help Ms Headley boost exports to the US as her shoes are cheaper to buy in dollars than if the pound were higher. However, the weak pound has meant that the cost of global shipping has soared for UK exporters.
“The real challenge, I would say, if it comes up, is if I could increase my sales overseas,” says Ms. Headley. “Right now I have quite a few clients who buy in America, but the majority of my sales are here in the UK.”
For small manufacturers in the US, the high value of the dollar makes their products more expensive for overseas customers and makes it difficult for them to win export business.
Molly Fienning, general manager of South Carolina-based Red Clay Hot Sauce, says she’s still looking forward to growing her company’s overseas sales in the years to come.
“We have to find that right [overseas] partners,” she says. “We really want to own our backyard and own the South, then own the US and then think global.”
Ms Fienning says that alongside the currency issue, she has seen the cost of key business expenses, like the price of boxes and how much she has to pay freight companies, have reached their highest levels since she became chief executive in 2018.
To protect the company from currency fluctuations, Red Clay sources its ingredients only from the United States. These include peppers, raw honey, and white wine vinegar.
“We started with all Southern produce and then as we grew we needed more peppers and more honey,” says Ms. Fienning.
Now the company sources peppers from all over the US east coast, from Florida to New York, and uses honey producers in Georgia and Colorado.
Back in the UK, experts say currency volatility is just one of many challenges facing small businesses. “I would say that UK small businesses in general are being challenged on a number of fronts,” says financial commentator Todd Benjamin.
“These include Brexit, a weaker currency for material imports, higher labor costs due to wage inflation, higher taxation due to the Chancellor’s announcement in the autumn statement and a weaker economy for the foreseeable future.”
In Istanbul, Pinar Buyukbalci, associate professor of entrepreneurship at the city’s Yildiz Technical University, says global investors are increasingly wary of investing in emerging markets whose currencies have fallen sharply against the dollar, such as Turkey and its lira.
“What we have witnessed in the last year and a half is the very strict and cautious approach of foreign investors when it comes to making further investments in start-ups in Turkey and also in all other emerging countries,” she says.
Timuçin Bilgör, president of the Turkey-based investor network Buba Ventures, agrees that it is now more difficult for new firms to find foreign investment. “The challenge is finding money,” he says, adding that investors want to see more proof of success before taking the plunge.
With higher global interest rates, funds are now also more expensive. “Money isn’t cheap anymore,” says Mr. Bilgör.
The key for new companies is to prepare for anything and try to cushion prices to accommodate shocks.
“Fortunately, when it came to creating my brand, I was able to create some leeway for problems,” says Ms Headley of Mokkah. “I didn’t really expect it to be a currency thing and I hope it gets better with time.”
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